The interbank call money rate has remained low and barely effective recently, as banks have reluctant to lend money to each other due to a shortage of funds.
Bangladesh Bank data showed that the average call money rate reached 8.72 per cent on August 4, with banks borrowing only Tk聽4,565 crore that day.
Banks borrowed on an average only Tk聽3,200 crore in between July 25 to July 31.
Banks have been struggling with severe liquidity shortages for a couple of years, and the recent unrests in the country has worsened the situation, bankers said.
Consequently, most banks are unwilling to lend to other banks because their funds are insufficient for their own operations, they said.
On May 8, the central bank increased its key policy rate by 50 basis points to 8.50 per cent as part of its contractionary monetary policy.
The special repo rate, or standing lending facility (SLF), which is the ceiling on the interest rate corridor, was also raised by 50 basis points to 10 per cent.
Meanwhile, the reverse repo rate, or standing deposit facility (SDF), was raised by 50 basis points to 7 per cent.
On the same day, the central bank scrapped its SMART rate policy for determining the lending rate and shifted to a market-based approach under pressure from the International Monetary Fund.
Following this change, the lending rate increased to nearly 15 per cent.
Banks borrowed a record Tk聽25,000 crore from the central bank to meet a high demand for deposit withdrawals amid countrywide turmoil and curfews centring the anti-government protest programmes held by the Anti-Discrimination Students Movement.
The country has been put under a curfew since midnight past July 19 amid the unrests centring students鈥� demands for a reform in the quota system in the government jobs.
Banking and other business activities had come to a standstill, which affected the general people and depositors as they had run out of cash.
The curfew was relaxed on July 24 to allow offices and banks to operate for a limited time. However, all offices resumed normal schedules on July 31.
However, the government cancelled relaxation of curfew and re-imposed extended curfew for an indefinite period.
It also announced general holidays for Monday, Tuesday and Wednesday, keeping all offices, including banks, shut.
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.
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.
Increased liquidity pressures have led to a steady rise in the weighted average call money rate since June past year, when it had stood at 6 per cent.
But, after rising to near 9 per cent, it has been hovering at the rate for the past three months as banks liquidity crisis intensified.
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
Bangladesh鈥檚 overall inflation rate reached 9.7 per cent in June, remaining over 9 per cent since March 2023.
