The excess liquidity in banks dropped by nearly 15 per cent or Tk 140 billion in September mainly due to higher growth of currency outside banking system before the national elections.
Officials said the selling of the US dollar by the central bank has also helped dragging down the amount of surplus cash in the country's banking system.
The excess liquidity came down to around Tk 800 billion in September from Tk 940 billion, recorded three months before, according to the officials.
The figure was nearly Tk 922 billion in September 2017.
On the other hand, the currency outside the banking system rose by more than 11 per cent or Tk 156.92 billion to Tk 1,533.95 billion in August from Tk 1,377.02 billion a month ago, according to the central bank statistics.
Such type of currency was Tk 1,478.23 billion in August 2017.
A substantial amount of the fund has been kept outside from the banking channel, which could be used during the polls, the insiders believe.
They also said the fund has been held using different techniques including purchase of cash US dollar from the open market, known as kerb market.
Inflation, particularly non-food one, may creep up in the coming months following the use of such currency centring the upcoming elections, according to economists and experts.
A portion of such currency may be pumped back into the banking channel in the form of donation, gift and other modes of transactions before and during the elections, they noted.
The demand for local currency may pick up if the amount of currency outside banks remains almost unchanged in the near future, they said.
Talking to the FE, Mustafa K Mujeri, former director-general of the Bangladesh Institute of Development Studies (BIDS), predicted that a large portion of such money would be used for consumption purposes, pushing up the inflationary pressure on the economy in the near future.
Mr. Mujeri, also former chief economist at the central bank, feared price level may increase if such money is used ahead of the elections.
However, the major portion of the excess liquidity has already been invested in the government-approved securities and Bangladesh Bank bills as a risk-free investment for the banks, said central bank officials.
Meanwhile, excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, came down to Tk 50.72 billion in September from Tk 59 billion in June 2018, according to the officials.
"The excess liquidity dropped significantly during the period despite the falling trend in the private sector credit growth," a BB senior official told the FE.
The credit growth to the private sector came down to 14.67 per cent in September 2018 on a year-on-year basis from 14.95 per cent a month ago. It was 15.87 per cent in July 2018.
The existing trend in excess liquidity may continue until the new government takes power, the central banker added.
Besides, around Tk 59 billion entered the BB's vault in exchange for US$ 704 million sold by the central bank to the banks during a period from July 01 to November 20 this year, according to a BB official.
The central bank has resumed offering support to the banks in recent months by selling the US currency directly to keep the foreign exchange market stable.
"The demand for the Bangladesh Taka (BDT) may pick up in the coming months if the excess liquidity maintains a declining trend," Syed Mahbubur Rahman, Chairman of Association of Bankers, Bangladesh (ABB), told the FE.
Mr. Rahman, also managing director and chief executive officer (CEO) of Dhaka Bank Limited, said the interest rate on deposits is now increasing gradually, which may continue if the situation on excess liquidity does not improve shortly.
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