BB is doing its part. But is it enough?
The central bank yesterday made funds cheaper for banks by reducing the policy or repurchase agreement rate (Repo) by 25 percent basis points to 5.75 per cent in order to help banks tackle the impending financial recession stemming from the coronavirus pandemic.
Besides, the regulator of the banking sector also cut banks' cash reserve ratio (CRR) by 50 basis points to 5 per cent, a move that would inject about Tk 6,500 crore into the economy, said a central bank official, who has a direct link with the matter.
The new CRR would take effect from April 1, while the lower repo rate would be effective from today.
In Bangladesh, the repo rate is the central bank policy rate (CBPR), which is the rate that is used to implement or signal the monetary policy stance.
Under the repo programme, the central bank gives fund to banks in events of cash shortfall. The repayment duration of repo is between one day and 28 days as per the central bank's regulations.
Cutting the repo rate by 25 basis points will have no impact on the banking sector, Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
The majority of the banks are facing cash withdrawal pressure for the last few days as people want to keep cash in hand during the crisis period.
Banks now need a huge amount of cash to figure out the situation, said Rahman, also an immediate past chairman of the Association of Bankers, Bangladesh, a forum of managing directors of banks.
"We should try to get the experience of the global financial market. Central banks of other countries are doing a lot to protect their economy from the ongoing financial crisis emerging from COVID-19," he added.
The measures are rather inadequate given the enormity of the destruction that novel, pneumonia-like virus is leaving in its wake, said Ahsan H Mansur, executive director of the Policy Research Institute.
"The central banks of other countries are running like horses to tackle the financial recession while the Bangladesh Bank is working like a pussycat. This kind of behaviour is not going to help build confidence in the market."
The BB should have cut the policy rate by at least 200 basis points and brought down the Statutory Liquidity Ratio (SLR) too, he said.
"The central bank should have not intervened on the CRR. Rather, it should have cut the SLR," said Mansur, also a former official of the International Monetary Fund.
Banks have to maintain 13 per cent as SLR in the form of Treasury bills and bonds against their total depositors' fund.
Although the central bank said it would purchase T-bills and bonds to inject liquid fund into the market, many lenders will not do so as they are enjoying a good interest rate from the securities ranging from 7.10-9.10 percent.
Had the central bank cut the SLR rate, banks would have been forced to sell their securities, which could have helped the private sector.
"In addition, the financial health of banks will weaken due to the CRR cut," said Mansur, also the chairman of Brac Bank.
The central bank should have also reduced the reference rate, which is using to provide fund from the refinance schemes of the central bank.
The reference rate should have been slashed by at least 250 basis points. At present, it is 5 per cent.
"The central bank has been rather mum about this," he added.
The Federal Reserve, the central bank of the United States, recently said it would inject $700 billion in the market. But now it is saying it will inject as much funds the market needs, he said.
"In contrast, our central bank has yet to articulate how much funds it would supply to the market," Mansur added.
Salehuddin Ahmed, a former governor of the central bank, also echoed the same as Mansur.
"The SLR should have been cut. These measures will not have a major impact given the gravity of the financial crisis," he added.