Dhaka, Bangladesh (BBN)– Bangladesh’s money market is now facing liquidity pressure following higher withdrawal of cash from the banks ahead of the national polls, bankers said.

Some cash-hungry banks have also availed liquidity facilities from the central bank in the form of repo and special repo to meet their growing demand for money, they added.

The weighted average call money rate rose to 4.58 per cent on Wednesday from 4.08 per cent as on December 13, according to the central bank’s latest statistics.

It was 3.66 per cent on November 29, 2018.

The rate was 2.77 per cent at the end of June 2018. It was 3.92 per cent on December 20, 2017.

Talking to the BBN, a senior executive of a leading private commercial bank said cash money withdrawal from the banks ahead of the election has created an extra pressure on the money market.

A total of 1,848 candidates are now contesting the December 30 polls across the country, according to the Bangladesh Election Commission.

As per electoral rules, each candidate is allowed to expend maximum BDT 2.5 million but not more than BDR 10 for each voter.
After four years, a few number of banks received special repo facility worth BDT 3.04 billion with paying 9.0 per cent interest from Bangladesh Bank (BB) on December 17 to meet their liquidity requirements.

Earlier on July 31 in 2015, a bank received BDT 300 million as special repo at 10.25 per cent from the central bank.
Such liquidity supports, provided by the BB, continues till Wednesday.

Besides, selling of US dollar directly by the central bank to the commercial banks has also pushed up pressure on the money market in the recent days/

More than BDT 91.96 billion entered the BB’s vault in exchange for US$1097 million sold by the central bank to the banks during the period from July 01 to December 24 this year, a BB official added.

The central bank has resumed offering such support to the banks in recent months by selling the US currency directly to keep the foreign exchange market stable.

The government’s higher bank borrowing ahead of the election has also pushed up pressure partially on the market, according to the market operators.

“Thanks to the central bank for receiving a substantial amount of money from auctions on both treasury bills and bonds through devolving on the BB,” the private banker added.

However, the government has already revised its auction calendar keeping an option for borrowing BDT 30 billion more in December for financing the budget deficit ahead of the polls.

Under the revised calendar, net borrowing from the banking system is set to reach BDT 50.50 billion by the end of this month compared with BDT 20.50 billion earlier.

The government has already borrowed BDT 30 billion more through issuing 14-day treasury bills (T-bills).

“Short-term borrowing will not affect the government’s aggregate borrowing from the banking system,” the official explained.

The BB official said: “It’s a temporary phenomenon that would be stable shortly after the polls.”