Call money rate within bounds
Unlike previous years, the inter-bank call money rate is not bustling this year ahead of Eid mainly because of prudent treasury management by commercial banks and injection of fresh funds into the market by the central bank.
Even significant cash withdrawal could not impact the call money rate and most deals were settled at between 5.5 percent and 6 percent yesterday, market operators said.
But at the end of the day, the rate soared to 10.25 percent in the inter-bank call money market yesterday.
“Treasury management by the banks is now better than anytime else,” said Anis A Khan, managing director and chief executive officer of Mutual Trust Bank.
Helal Ahmed Chowdhury, managing director of Pubali Bank, said his bank was prepared this time in terms of treasury management.
Chowdhury also found two other reasons why the rate was stable. Firstly, Bangladesh Bank (BB) pursued a timely management of treasury. At the same time, it was seen that individual depositors did not take away money from the banks to invest in the stock market.
The call money rate is the rate at which short-term funds are lent and borrowed among banks. It is also called the overnight money market for credit.
Volatility in the overnight money market rate is a common phenomenon for the country's banks and non-bank financial institutions. The market participants determine the rate according to their perceptions of the current and future liquidity condition in the market. Thus, this rate shows the supply and demand behaviour of bank reserves, and it gives important signals to the central bank to understand market pressure.
Eid-ul-Fitr and Eid-ul-Azha are the two peak seasons for a rise in demand for money. Last year, the rate touched 12 percent. It was 35 percent in 2004 and 43 percent in 2005.
“The money market seems stable this year because banks have adequate cash,” said Motiur Rahman, head of treasury at Prime Bank.
Rahman said the central bank is also giving money through repo auction and special liquidity support for 15 dealer banks and non-banks that want it.
BB sells money to the banks by a repurchase agreement, commonly known as repo, to help the market remain stable. The present repo rate is 5.5 percent.
Statistics show that the central bank injected fresh funds worth over Tk 1,100 crore through repo on Thursday. Another Tk 679 crore was injected on Tuesday.
Banks had excess liquidity worth Tk 33,127 crore at the end of July, down from Tk 34,500 crore a month ago.