Demand for call money eases in July

HM Murtuza | Published: 22:21, Jul 17,2020

 
 

Demand for call money by the banks eased a bit as the inter‑bank weighted average interest rate in call money was below 4 per cent on most days in July after the rate staying around 5 per cent and above for the last six months.

Bankers said that the call money rate had eased in July as money started to flow between the banks with the gradual restoration of business and economic activities.

In July, the weighted average interest rate of call money was below 4 per cent in six out of 11 days while the rate was above 4 per cent since December 15, 2019.

As per the Bangladesh Bank data, the banks’ daily average borrowing through the call money market fell by 15.68 per cent or Tk 1,346 crore to Tk 7,232 crore in July from Tk 8,577 crore in June.

The government’s heavy borrowing from the banking system in the just concluded fiscal year was another reason behind the hike in the call money rate.

The lowest interest rate on the call money market in July was 1 per cent and the highest was 5.5 per cent while the lowest rate in June was 3.75 per cent and the highest was 5.5 per cent.

The inter-bank call money market is a short-term money market that allows the banks to borrow and lend money.

The call money rate is the interest rate that the banks charge other banks or financial institutions on overnight loans.

Trust Bank managing director and chief executive officer Faruq Mainuddin Ahmed told New Age, ‘The interest rate on the call money market depends on the liquidity situation in the banking sector.’

The interest rate on the call money market declines if the banks have adequate liquidity while the rate increases when the banks are in liquidity shortage, he said.

‘An increase in stimulus loan disbursement by the banks could be a reason behind the decline in demand for call money as the fund started to revolve from one bank to another,’ he said.

However, we cannot come to a conclusion right now about the liquidity situation in the banking sector, the managing director added.

‘If credit demand increases in the coming months, the call money rate may increase unless the banks have adequate liquidity,’ he said, adding that the rate might remain low even after the credit demand spike if the banks had adequate liquidity to fulfil the demand.

He predicted that business activities might not improve significantly in the year 2020 and the banks were looking forward for the next year to arrive.

An official of the central bank said that the government’s borrowing from the banking sector would largely determine whether the call money rate would remain stable or not in the coming days.

In the immediate past fiscal year, the government borrowed Tk 85,231 crore from the banking system to fulfil budgetary requirements amid huge revenue shortfall.

Given the government’s Tk-84,980 crore bank borrowing target in FY21, the call money rate may remain high if the loan recovery of the banks remains dismal in the coming months of the year 2020.

Even though the central bank provided a number of policy support, including lowering the cash reserve ratio to improve the banks’ lending capacity, private sector credit growth dropped to 8.86 per cent in May against the BB’s projection of 14.8 per cent credit growth.

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