Eid is putting pressure on the economy

Banks are getting around Tk6,000 crore from Bangladesh Bank day to day

Photo: Collected

A major liquidity crisis is plaguing the country's currency market ahead of Eid-ul-Fitr, courtesy of the money market, which is suffering its own crisis.

The crisis has spread to almost all banks, especially private banks.

Even the four big state-owned banks now have to borrow from the money market.

On the other hand, Bangladesh Bank is vigilant in tackling the crisis, lending an average of around Tk 6,000 crore every day.

This amount has to be paid to commercial banks as repo and guaranteed liquidity support (ALS).

The central bank is also playing a role in controlling interest rates in the call money market.

But as liquidity demand has intensified in recent times, the call money market has also heated up, leaving banks with no option but to borrow at higher rates.

Therefore, the weighted average interest rate in the call money market rose to 4.54% in April from 2.75% in the previous month.

However, due to fixed interest rates, lending banks are no longer interested in investing in call money.

Banks are presently loaning for 2-14 days without prior warning of call cash.

In this case, the interest rate increased to 8%. If the term is long, banks will have to pay more than 9% interest.

Nonetheless, the nation's financial area currently has a most extreme interest cap of 9%.

Ahead of Eid, economic activity in the country has also intensified, leading to increased demand for cash, bank officials said, adding that banks usually rush to the call money market to meet any immediate cash needs.

According to Bangladesh Bank, banks borrowed an average of Tk 7,173.73 crore from the call money market in April, compared to Tk 7,144.20 crore in the previous month.

Which is what the stakeholders are saying

According to the Bangladesh Money Market Dealers Association (BAMDA), an association of banks' treasury officials, Bank Asia is currently at the forefront of lending in the country's currency market.

Besides, IFIC, Uttara and Pubali Bank are on the list of lenders.

State-possessed business banks likewise need to get from these private area banks.

Most of the local private banks are currently transacting daily with loans from other banks including Bangladesh Bank.

AB Bank, Dutch-Bangla, Dhaka, NRBC, Meghna, South Bangla, Midland and a few other banks have the highest demand for liquidity.

Dhaka Bank additionally needs to get from the currency market.

Asked about this, the bank's managing director Emranul Haque told the media, "So far there has been no problem in getting money at low interest from the call money market. But suddenly there is tension in the money market. We are borrowing through various means including exchange, repo and short notice to meet our requirements. But the problem is that interest rates have risen by 7% on short notice. ”

On the off chance that this present circumstance endures till Eid-ul-Fitr, everything is good to go. However, over the long haul, it will be a major gamble for the nation's financial area, he added.

Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, said the demand for liquidity usually increases before Eid, as the demand for cash increases at this time.

Notwithstanding the issue, the liquidity circumstance in the market went under additional tension because of the infusion of US dollars by the national bank into the market and for that reason the flow of cash has declined pointedly, said Mahbubur, likewise previous administrator of the affiliation.

Therefore, the interbank call cash rate has expanded as of late, he said.

Asked about the liquidity crisis, Md Sirajul Islam, executive director and spokesperson of Bangladesh Bank, said appropriate steps were being taken.

This is due to the growing demand for liquidity in the currency market at the moment. He hoped that the situation would return to normal after Eid.

Be that as it may, banks should be more cautious and mindful in dealing with their assets, he added.