Dhaka, Bangladesh (BBN)– The inter-bank call money rate is likely to keep stable before the Eid-ul-Fitr, as most of the banks are awash with excess liquidity following lower effective demand particularly for large loan.
The call money rate came fell to 1.10-4.50 per cent on Tuesday from 2.75-4.50 per cent of the previous working day. However, most of the deals were settled at rates varying between 3.25-4.0 per cent, the market operators said.
According to the central bank satieties, total turnover in the call money market also dropped to BDT 56.72 billion on the day from BDT 59.28 billion of the previous working day. It was BDT 59.98 billion on Sunday.
“Falling trend in the overall transactions indicates lower demand for overnight borrowing in the money market despite higher withdrawal of cash from the banks ahead of the Eid,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
Considering the current liquidity situation in the market it is unlikely that the call money rate would increase from the existing level ahead of the Eid festival, according to the central banker.
Normally, the call money rates increase before the Eid festival to meet the growing demand for cash from the banks’ clients.
The overall excess liquidity with the commercial banks stood at around BDT 1.16 trillion as of May 26. Major portion of the funds has been invested in the risk-free government securities, the BB official added.
He also said excess reserve, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 33 billion.
Meanwhile, the overall excess liquidity with the commercial banks has started showing a falling trend recently due to higher credit growth, particularly in the private sector, the central banker explained.
The excess liquidity came down to BDT 1.16 trillion as of May 26 from BDT 1.17 trillion in the first week of the same month, the BB data showed.
“We expect that the declining trend of excess liquidity with the banks may continue in the coming months, if the existing private sector credit flow persists,” the BB official noted.
Senior bankers, however, said most of banks are investing their excess funds in the BB bills and other government-approved securities to minimise cost of funds.
“We’re also offering lower interest rates on lending to ‘good customers’, particularly the corporate entities, to minimise our cost of funds,” a senior official of a leading private commercial bank told BBN in Dhaa.
He also said most of the credits are going to SMEs, agriculture, apparel and clothing sector, consumer and commercial purposes.
“Demand for large loans is still low despite the recent higher private sector credit growth,” the banker observed.