The interbank call money rate on Tuesday surged to 9.3 per cent from 8.62 per cent on May 8, following an increase in the policy rate by the Bangladesh Bank.
On May 8, the central bank increased its key policy rate by 50 basis points to 8.50 per cent in line with its contractionary monetary policy.
The special repo rate, standing lending facility or SLF, which is the ceiling of the interest rate corridor, has been raised by 50 basis points to 10 per cent.
Meanwhile, the reverse repo rate, standing deposit facility or SDF, has been raised by 50 basis points to 7 per cent.
The BB on the same day scrapped its SMART rate policy of determining lending rate and shifted to the market-based approach amid International Monetary Fund鈥檚 pressures.
After the withdrawal of the system, the lending rate increased to 13-14 per cent.
Earlier on June 18, 2023, the BB in its monetary policy statement adopted a new interest rate system, introducing the six-month moving average interest rate of 182-day treasury bill (SMART), which was controlled as it allowed to move the interest rate at certain rate.
Therefore, call money rate also increased on the market.
The call money rate is the interest rate on a short-term or overnight loan from one bank to another to meet an urgent requirement.
Increased liquidity pressures have also led to a steady rise in the weighted average call money rate since June, when it stood at 6 per cent.
The sharp increase in the call money rate correlates with the Bangladesh Bank鈥檚 decision on October 5 to raise the policy rate by 75 basis points, shifting it from 6.4 per cent to 7.25 per cent, as a measure to counter inflationary pressures.
Bangladesh鈥檚 overall inflation rate reached 9.74 per cent in April, remaining over 9 per cent since March 2023.
The Bangladesh Bureau of Statistics recorded inflation on point-to-point basis at 9.74 per cent in April.
The inflation has remained over 9 per cent since March 2023, driven by escalating prices of essential commodities.
Banks typically resort to emergency loans like call money to rectify asset-liability mismatches, fulfil statutory CRR and SLR requirements and respond to sudden surges in fund demands.
The call money rate began its sharp ascent after March 21, 2022, when it stood at 2.05 per cent, according to the BB data.
Bankers said that the government鈥檚 increased borrowing from the banking system, BB鈥檚 dollar sales to banks to settle import bills and a rise in treasury bill rates were creating stress on the liquidity.
The rise in inflation also created credit demand, they said.
To mitigate the prevailing dollar crisis, the Bangladesh Bank has sold approximately $32 billion from the country鈥檚 foreign currency reserves over the past 34 months.
Of this amount, $11.65 billion was allocated to banks in July-April of FY 2023-24, $13.5 billion in FY23 and $7.62 billion in FY22.
The dollar sales, in turn, mopped up equivalent local currency from the banking system.
