Bangladesh Bank on Tuesday reduced the cash reserve ratio (CRR) for banks from 3.5 per cent to 3 per cent considering the current poor deposit growth in the banking sector.
BB issued a circular in this regard on the day, with effective from today.
The growth rate of deposits in the banking sector has declined to 7.44 per cent while the central bank has also stopped providing loans daily.
The reduction in CRR rate will slightly increase the investable funds available to banks.
The CRR is the percentage of a bank鈥檚 total deposits that it must keep as cash reserves with the central bank. This reserve is maintained to ensure liquidity and financial stability in the banking system.
For example, if the CRR is 3 per cent, a bank with Tk 100 crore in deposits must keep Tk 3 crore with Bangladesh Bank and can use the remaining Tk聽97 crore for lending and investment.
A central bank official stated that the International Monetary Fund has advised modernising the monetary policy framework as part of loan conditions.
Following this recommendation, the central bank has also restricted banks from borrowing funds on a daily basis. Moving forward, banks will not be able to borrow for 14-day and 28-day terms either.
Therefore, the CRR requirement has been adjusted鈥攚hile the daily deposit requirement has been reduced and the two-week average requirement remains unchanged.
According to the Bangladesh Bank circular, scheduled banks, including Shariah-based banks, are currently required to maintain a minimum of 4 per cent of their total demand and time liabilities as a bi-weekly average, with a daily minimum of 3.5 per cent.
However, from March 5, the daily requirement will be lowered to 3 per cent, while the bi-weekly average requirement will remain at 4 per cent.
Earlier, Bangladesh Bank announced that the 28-day repo facility would be discontinued by the third week of March, followed by the closure of the 14-day repo in June.
As a result, banks will only be able to borrow funds from the central bank once a week鈥攐n Tuesdays鈥攁t the policy interest rate.
