Dhaka, Bangladesh (BBN)-The central bank is going to resume auction of 30-day Bangladesh Bank Bills from Monday after nearly two months of suspension.
"We've decided to auction the bills as a monetary tool from March 8 this year aiming to mop up surplus liquidity from the market," a senior official of the Bangladesh Bank (BB) told BBN in Dhaka on Sunday.
He also said it is a temporary measure to boost the country's money market.
Market operators expect that the call money rate, which is hovering between 2.25 per cent and 3.00 per cent, may move slightly upward with the resumption of the auction.
“Moping up of excess liquidity from the market will depend on the yield of the bills,” a senior treasury official of a commercial bank said, adding that the banks and financial institutions would feel encouraged to participate in the auction if the interest rate of the bills moves upward.
Excess liquidity of the country’s scheduled banks stood at BDT 343.59 billion in November last against BDT 347.62 billion in June 2009, according to the central bank statistics.
“The liquidity with the banking system started increasing gradually in the recent months due mainly to reduced bank borrowing by the government,” the treasury official said.
The government’s net bank borrowing dropped by 21.91 per cent to BDT 61.46 billion during July-December period of the fiscal 2009-10 against the target of BDT 78.71 billion.
On the other hand, deposit in banks have been rising following increase in the flow of inward remittances, he said, adding that the excess liquidity of the banks is still higher despite upward trend of the credit flow to the private sector.
The credit flow to the private sector recorded a 19.15 percent growth to BDT 243.705 billion in December from BDT 204.532 billion in the same period of the previous calendar year, the BB’s data showed.
The auction of bills was reintroduced on August 10 last year that continued till January 11 this year, the central bank officials said.
The central bank of Bangladesh reintroduced 30-day and 91-day Bangladesh Bank Bills in October 2006 as monetary policy instruments following decision that the government treasury bills and the bond auctions are exclusively used for the government debt management.
However, the auction of 91-day Bangladesh Bank Bills was discontinued to avoid duplication with 91-day Treasury Bills from January 8, 2008.
There was also no auction of 30-day Bangladesh Bank Bills since January 8, 2008.
BBN/SS/SI/AD-08March10-12:34 am (BST)