Bankers have proposed that the central bank should lower the applicable interest rate on the REPO (Repurchase Agreement) facility further to make liquidity cheaper for the banks in addition to the BB’s recent moves to increase liquidity in the banking sector.
On April 5, the government announced a number of stimulus packages worth Tk 67,750 crore along with the earlier-announced Tk 5,000 crore support for the readymade garment sector, taking the total value of the stimulus packages to Tk 72,750 crore.
To support implementation of the stimulus packages, the BB reduced the mandatory cash reserve ratio and REPO rates on Thursday as part of its move to provide the banks with adequate liquidity.
In reaction to the BB announced stimulus, the bankers said that the lowering of the CRR to 4 per cent from 5.5 per cent in two phases would make Tk 18,600 crore available in the banking system along with the existing Tk 1.20 lakh crore excess liquidity in the sector in the form of CRR and statutory liquidity ratio (SLR).
As there was a mismatch of excess liquidity among the banks, the central bank lowered the CRR rate along with reducing the REPO rate, said senior officials of the central bank.
The banks are bound to keep a certain amount of money with the central bank in cash against their customers’ deposits.
Along with the lowering of the CRR to 4 per cent, the BB also reduced the REPO rate to 5.25 per cent.
As per Thursday’s circulars issued by the central bank, the new cash reserve ratio would come into effect on April 15 and the REPO rate on April 12.
On March 23, the BB reduced the CRR to 5 per cent from 5.5 per cent and REPO rate to 5.75 per cent from 6 per cent.
‘The lowering of the cash reserve ratio would help inject fresh cash into the market and would help to support the government announced stimulus packages by issuing credit to the businesses,’ Mutual Trust Bank managing director Syed Mahbubur Rahman told New Age on Friday.
Speaking about the REPO rate cut, Mahbub said, ‘The central bank should lower the REPO rate further as it would help banks to issue quality credit to the customers.’
‘There would be a need for further liquidity in the market if the government fixed Tk 50,000 crore stimulus packages were taken into the consideration,’ said Mahbub, also a former chairman of the Association of Bankers, Bangladesh. He proposed that the BB should lower the REPO rate below 4 per cent and the tenure of the REPO facility should be extended to six months.
At present, the banks are allowed to borrow funds from the central bank through the REPO facility for a period of up to 28 days.
The former ABB chairman, however, did not think that the businesses would be interested in taking credit facility before the coronavirus situation regained normalcy.
‘Businesses would not take the risk of lending even though the applicable interest rate would be very much lucrative,’ Mahbub said, adding that the announcement would give some encouragement in rebuilding or restarting their businesses once the pandemic was over.
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