Regulators differ on cash-flow tools

The government is undecided whether to reduce banks' reserve requirements through two major monetary tools in an effort to increase cash flow in the stockmarket.
The regulators differed over lowering the statutory liquidity ratio (SLR) and cash reserve requirement (CRR) after the capital market fell to its lowest in two years.
Bangladesh Bank opposes any plan to reduce SLR and CRR -- two major monetary tools used by the central bank to contain inflation.
Last month, the inflation rate touched a 13-year high of 11.42 percent.
On the other hand, the Securities and Exchange Commission (SEC) is pushing for lowering SLR and CRR so that the banks can have more funds to invest in stocks.
CRR refers to the cash banks have to park with Bangladesh Bank against their liabilities, while SLR refers to liquid assets banks have to hold. Both tools are used to provide a buffer in case of a bank run.
Regulators expressed differing opinions on decreasing SLR and CRR at a Friday meeting on the share market bailout with Finance Minister AMA Muhith in the chair.
As a result, though the government reached a settlement on many recommendations of the SEC on share market, it failed to reach a decision on reducing SLR and CRR.
Muhith will sit today for the second time in three days with policymakers as a follow-up on the meeting of Prime Minister Sheikh Hasina with market stakeholders on Wednesday.
A decision on SLR and CRR may be taken at today's meeting, finance ministry officials said yesterday.
In the face of share market destabilisation the prime minister on Thursday met with the policy makers and stakeholders for about four hours.
One of the SEC recommendations for increasing liquidity in the market was reducing SLR and CRR. But Bangladesh Bank opposed it, saying it would shoot up inflation.
The two regulators maintained their respective positions in the meeting with the finance minister the following day.
Economists have told The Daily Star that to reduce inflation, it would not be wise to decrease SLR.
The central bank in December last year increased CRR by 0.5 percentage points to raise it to 6 percent. It increased SLR to 19 percent.
Mohammad Farashuddin, newly appointed chairman of the government's advisory council on share market and former central bank governor, told The Daily Star that CRR might be reduced by 0.5 percent to 5.5 percent. He, however, said SLR should continue to be 19 percent.
In Bangladesh, he said, private sector credit is very high and it must be brought down to contain inflation. He said private sector credit growth should be kept limited to 17 to 18 percent.
Mirza Azizul Islam, former adviser of a caretaker government, told The Daily Star on Friday that SLR should not be reduced in any situation. The private sector credit growth in Bangladesh is still high though in recent times it decreased slightly.
Farashuddin said the banks should invest half of the profit they made in the share market last year to stabilise the stockmarket. If it causes any loss to the banks at all it will be from their profit.
Last year, 47 banks made a total profit of Tk 16,000 crore. Of them, 28 banks made Tk 2,497 crore from the share market.
Though the banks claim to face liquidity crisis the central bank statistics shows that the rate of interest in the call money market is coming down.
Before and after the last Eid-ul Azha the highest rate of interest in the call money market went up to 21-22 percent, but on Thursday last it was 14 percent.