Dhaka, Bangladesh (BBN) – Bangladesh Bank (BB) on Wednesday raised the cash reserve requirement (CRR) by 0.5 percentage points to 5.5 percent for the commercial banks to curb inflationary pressure on the economy.

Under the new rules, the commercial banks will have to maintain 5.5 per cent CRR with the central bank from their total demand and time liabilities on a bi-weekly basis.

The new CRR will be effective from May 15, 2010, according to a central bank, issued on Wednesday.

It, however, said the banks will be allowed to maintain the reserve at 5.0 percent instead of the existing 4.50 per cent on daily basis, but the bi-weekly average has to be 5.50 per cent in the end.

The new CRR comes after a gap of more than four years. The central bank last increased the ratio by 0.5 percentage points to 5.0 per cent on October 1, 2005.

“We’ve increased the CRR to curb inflationary pressure on the economy,” General Manager of the Monetary Policy Department of BB, the country’s central bank, Begum Sultana Razia told BBN in Dhaka.

The central bank expects that the inflationary pressures might ease in the upcoming months following the latest policy intervention, she noted without elaborating.

“We’re hopeful about mopping up over BDT 15 billion excess liquidity from the money market by raising the CRR,” another BB official said, adding that the amount of excess liquidity over CRR is now around BDT 31.14 billion.

He also said broad money supply in the market has already risen to 21.9 percent, far higher than the central bank target of 15.5 percent, as inflation soared on the back of rising commodity prices in the global market.

The country’s inflation as measured by consumers’ price index (CPI) rose to 9.06 per cent in February 2010, up from 8.99 per cent of the previous month, according to the Bangladesh Bureau of Statistics (BBS) data.

The rate of inflation went up by 0.07 percentage points in February, over that of the previous month, mainly because of the increase in prices of food items.

The central bank also increased the rate of statutory liquidity ratio (SLR) to 18.50 per cent from the existing 18 per cent, which will come into effect from May, 15 this year, the central bank said in a separate directive, issued on the same day.

The country’s businessmen think the BB’s latest move may affect them more or less, saying that the borrowing from banking system may be squeezed in the near future due to increase in the CRR.

BBN/SS/SI/AD-05May10-11:42 pm (BST)