Call money rate unlikely to rise before Eid

Dhaka,  Tue,  25 July 2017
Published : 28 Jun 2016, 22:31:40
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Call money rate unlikely to rise before Eid

Siddique Islam

The inter-bank call money rate is unlikely to rise ahead of the Eid-ul-Fitr, as most of the banks are awash with excess liquidity following lower effective demand particularly for large loan, bankers said.

The call money rate came down to 1.10-4.50 per cent on Tuesday from 2.75-4.50 per cent the previous working day. However, most of the deals were settled at rates varying between 3.25-4.0 per cent, the market operators said.

Total turnover in the call money market also dropped to Tk 56.72 billion on the day from Tk 59.28 billion the previous working day, according to the central bank statistics. It was Tk 59.98 billion on Sunday.

“Declining trend in the overall transactions indicates lower demand for overnight borrowing in the money market despite higher withdrawal of cash from the banks ahead of the Eid,” a senior official of the Bangladesh Bank (BB) told the FE.

He said considering the current liquidity situation in the market it is unlikely that the call money rate would increase from the existing level ahead of the Eid festival.

Such short-term borrowings normally increase before the Eid festival to meet the growing demand for cash from the banks’ clients.

The overall excess liquidity with the commercial banks stood at around Tk 1.16 trillion as of May 26. Major portion of the funds has been invested in the risk-free government securities, according to another BB official.

He also said excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 33 billion.

Meanwhile, the overall excess liquidity with the commercial banks has started showing a falling trend recently due to higher credit growth, particularly in the private sector, the central banker explained.

The excess liquidity came down to Tk 1.16 trillion as of May 26 from Tk 1.17 trillion in the first week of the same month, the BB data showed.

“We expect that the declining trend of excess liquidity with the banks may continue in the coming months, if the existing private sector credit flow persists,” the BB official noted.

Talking to the FE, a senior official of a leading private commercial bank (PCB) said a section of banks are investing their excess funds in the BB bills and other government-approved securities to minimise cost of funds.

“We’re also offering lower interest rates on lending to ‘good borrowers’, particularly the corporate entities, to minimise our cost of funds,” the private banker also said.

Most of the credits are going to SMEs, agriculture, apparel and clothing sector, consumer and commercial purposes, according to him.

“Demand for large loans is still low despite the recent higher private sector credit growth,” a senior official of a foreign commercial bank told the FE.

siddique.islam@gmail.com

 
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