The reverse repo operation in the money market, a process where central bank borrows money from banks through bidding as a means of monetary tool, remains almost halted for quite sometime.
It has happened, as the Bangladesh Bank (BB) did not accept bids, signifying that the monetary instrument is 'losing its effectiveness.'
On the other hand, the volume of money borrowed through repo operations, a process where banks borrow from the central bank, also declined significantly in the recent period.
Such pictures were presented in a report of the central bank on the money market.
The money market experts told the FE that through such reluctance to borrow from the commercial banks BB wants to give a signal that the market is in equilibrium and it requires no intervention.
But in real sense there is adequate liquidity in the banking system.
BB latest statistics shows that the volume of idle money, which remains unused for long in the banking system, amounts to Tk 2.77 trillion or equivalent to nearly 16 per cent of the country's GDP, as of November 2016.
They also told the FE that both the commercial banks and the central bank have adequate cash to meet their demands that has made both the tools almost 'inactive'.
However, this 'non-functionality' of the tools is hurting the commercial banks, as they are losing a better opportunity to invest, through which they might gain more than other available options.
The experts argued that the volume of borrowed money through repo shrank, as the banks could collect deposit from their clients by giving interest at much lower rates than BB.
Currently, the repo rate is 4.75 per cent, and the reverse repo is 6.75 per cent.
Dr Zahid Hussain, lead economist at World Bank Dhaka office, told the FE that the monetary instrument is losing its effectiveness through such state of the reverse repo operation.
"The process is open market-based, and its absence causes shrinking of domain of the money market."
Dr Hussain said it should have been operationalised for the interest of the money market.
He said BB does not feel the need to borrow, as the money that remains idle in the market is not pushing up the inflation rate as per the estimation of Bangladesh Bureau of Statistics.
However, Finance Minister A M A Muhith in a recent meeting with the economists and professionals said Bangladesh's statistics is 'not reliable as well as conflicting' with other statistics.
"If the central bank sees that the core inflation is going down, it will not borrow money from the commercial banks, as such type of operation shrinks its profitability significantly," he commented.
On the other hand, Dr Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, told the FE that the central bank is not borrowing money, as it wants to indicate that the money market remains in an equilibrium position.
A number of senior bankers told the FE that adequate money remains unused in the banking system, leading to less borrowing through repos.
They also said they can manage emergency funds now through call money or inter-bank transactions.
Anis A Khan, managing director and CEO of Mutual Trust Bank Limited, told the FE that the money market remains stable and does not need borrowing from the central bank.
Md Golam Hafiz, managing director and CEO of National Credit and Commerce Bank Limited, told the FE that reverse repo may be an attractive tool for the banking system, as it gives higher dividend than other available options.
"If I give my excess money to the calls (call money), I get 2.0 per cent, and if the central bank borrows the money we may accrue interest at much higher rates," he commented.
Nurul Amin, managing director and CEO of Meghna Bank, told the FE: "We've ample idle money for long, so we need not borrow much from the central bank."
He said he has never seen such a large amount of unused money in the banking system.
However, many economists said the situation may change dramatically, if the volume of investment and import rises fast.
They opined that Bangladesh is lagging much behind to prop up required investment to meet its GDP goal.
According to central bank statistics, there were 46 reverse repo auctions in October-December 2016 quarter involving more than Tk 36 billion. But the central bank did not accept any of the short-term reverse repos.
During July-September period of this fiscal year (FY), 2016-17, some 40 auctions of reverse repo were held, amounting to nearly Tk 47 billion, but BB declined to accept those also.
Similarly, during Mach-June period of the previous FY there were reverse repo auctions, which were not accepted by the central bank.
Four repo auctions, worth Tk 0.67 billion, were held during October-December period of this FY, and were accepted.
During July-September last, only two repo auctions, worth Tk 0.48 billion, were held and accepted by the central bank.
During March-June period of the previous FY, one repo auction, amounting to Tk 8.48 billion, was accepted.