The inter-bank weighted average rate of call money bounced back to over 5 per cent after the nationwide lockdown was lifted as government borrowing from the banking sector surged amid revenue shortfall.
The rate was within 5 per cent for around two months during the lockdown imposed by the government to contain the spread of the coronavirus pandemic.
Although the banks facilitated transaction on a limited scale, demand for money was significantly low as almost all business activities were suspended during the lockdown.
Even on the eve of Eid-ul-Fitr, a time when demand for liquidity usually reaches the peak, the weighted average call money rate was within 5 per cent because businesses this year needed a minimal amount of cash, said bankers and BB officials.
Apart from the surge in demand after the lockdown was lifted, the government’s heavy borrowing from the banking sector was another reason behind the rise in the call money rate.
According to the central bank data, the weighted average rate of call money rose to 5.03 per cent from May 31 as the banks had to pay the highest 5.5 per cent against their borrowing through the call money market.
The lowest rate witnessed was 4.5 per cent since Sunday last week when the banks borrowed Tk 7,372.19 crore from the inter-bank call money market.
Between March 31 and May 28 this year, the highest borrowing rate on the call money market was 5 per cent throughout the lockdown and the lowest rate was recorded at 3 per cent on April 21.
As a result, the call money rate was within 5 per cent during the twomonth lockdown.
The weighted average interest rate on the call money market surpassed 5 per cent for the first time on August 22 last year, hitting 5.02 per cent for the first time after October 2015.
Since then, the rate has been hovering at above 5 per cent. It hit 5.21 per cent on March 18 this year.
The BB officials said that the rate had remained high during the entire fiscal year 2019-2020 mainly due to the higher rate of interest against the treasury bills and bonds the government was offering.
The cut-off yield rate of the 20-day treasury bond rose to 9.2 per cent on May 20 this year.
Bankers and experts, however, said that the high volume of borrowing by the government through the banking system had been adversely impacting the private sector credit flow throughout the entire fiscal year.
As of May 13, the government’s net borrowing from the banking sector had increased around Tk 81,000 crore.
The lockdown, coupled with the government’s excess bank borrowing, pulled down the credit flow to the private sector to 8.82 per cent in April this year.
Credit growth in February and March was 9.13 per cent and 8.86 per cent respectively while the growth was 11.26 per cent even in last July against the central bank’s monetary policy projection of attaining a 16.5per cent growth.
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