The interbank call money rate on Monday surged to nearly 10 per cent following an increase in the policy rate by the Bangladesh Bank.
On October 22, the central bank increased the policy rate by 50 basis points to 10 per cent, which became effective on Sunday.
Therefore, the call money rate increased to 9.87 per cent on Sunday and 9.92 per cent on Monday from 9.5 per cent in the previous working day.
The bank regulator continued raising the rate with the aim of tightening money supply to control inflation.
The BB has begun to hike policy rate sharply since May 2022 when it was at 5 per cent. It raised the policy rate for the fifth time in the current year.
Apart from the repo rate, the highest ceiling on policy rate corridor of standing lending facility rate has been increased by 50 basis points to 11.5 per cent while the lowest limit on standing deposit facility rate has been raised to 8.5 per cent.
The special repo rate was renamed as the SLF and the reverse repo renamed as the SDF.
Due to the jump in policy rate, lending rate was hovering at 15-16 per cent in many banks.
Therefore, businesses became worried as cost of doing business kept rising, which eventually would affect business production and profitability, bankers said.
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 past year, when it stood at 6 per cent.
Although inflation eased slightly to 9.92 per cent in September from a peak of 10.43 in August, it still remained high.
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 until June 30.
The dollar sales, in turn, had mopped up equivalent local currency from the banking system.
Besides, massive loan irregularities and capital flights during the recently deposed Awami League regime worsened the liquidity crisis in the banking sector, bankers said.