The demand for Bangladesh Taka (BDT) in the money market fell drastically mainly due to the recent slash of the cash reserve requirement (CRR) by 1.0 percentage by the central bank.
Both the weighted average inter-bank call money rate and weighted average yield on Bangladesh Bank (BB) Bills dropped significantly in the recent days in lockstep with the revised CRR, according to market operators.
The weighted average inter-bank call money rate came down to 3.76 per cent on Monday from 4.53 per cent as on April 12 while volume of transaction also fell to Tk 46.66 billion from Tk 78.36 billion, according to the central bank's statistics.
"The ongoing downward trend in the call money market continued on Tuesday," a BB senior official told the FE without elaborating.
On the other hand, the weighted average yield (WAY) on 07-Day BB Bills fell to 1.32 per cent on Tuesday from 2.98 per cent as on April 12 while the WAY on 14-Day BB Bills dropped to 1.28 per cent from 2.98 per cent.
Besides, the central bank suspended the auction of 30-Day BB Bills since April 01without official announcement to help mitigate the liquidity crunch in the banking system.
The market operators, however, said the central bank is not accepting all bids of the BB Bills in the recent days.
On Tuesday, 12 bids amounting total of Tk 36.55 billion were offered for 07-Day BB bill auction. Of which three bids amounting a total of Tk 6.55 billion were accepted. On the other hand, 10 bids amounting a total of Tk 35.95 billion were offered for 14-Day BB bill auction. Of which four bids amounting Tk 24.50 billion were accepted.
When contacted, a BB senior official said: "Yes, we're now discouraging the banks to invest their excess money in the BB bills."
The central bank wants that the banks will invest their excess funds in the productive sectors to help achieving maximum economic growth by the end of this fiscal year, the central banker explained.
He also said: "Our latest moves will help bring down the interest rates on lending at single digit from the existing level."
Earlier on April 16, the BB asked the banks to take effective measures to lower the interest rate on lending to single digit from the existing level as soon as possible.
Around 20 PCBs are not eligible to provide fresh loans because of their higher advance-deposit ratio (ADR) than safe limit, set by the BB earlier, according to banking sector insiders.
The banks, having more than 85 per cent ADR, are not officially entitled to expand their credits without increasing their deposits, they added.
They also said the PCBs have also faced difficulties to provide fresh loans following implementation of the asset-liability management (ALM) guidelines by the BB strictly.
All banks have already been instructed to implement the ALM guidelines strictly to manage their liquidity risk properly.
All the scheduled banks are enabled to use Tk 101 billion additional fund since April 15 after implementation of revised CRR rules.
Under the revised rules, the banks will have to maintain 5.50 per cent CRR with the central bank from their total demand and time liabilities on a bi-weekly basis from 6.50 per cent earlier.
