Call Money rates up despite liquidity

Despite sufficient liquidity in most banks, the call money rates for lending in the festive season are up.

On Wednesday, transactions between banks and financial institutions on short term loans touched Tk 81.84 billion, according to Bangladesh Bank statistics.

United Leasing and United Capital took short term loans from a bank at 9.25 percent, the highest interest rate paid. The lowest interest rate was 6 percent.

On an average, interest rate hovered round 8.52 percent.

On Tuesday, the call money transactions had touched Tk 74.97 billions. The day before, it was higher at Tk 79.02 billion.

Call money rates -- interest rates on short-term loans -- shoot up during the festive season because liquidity is stretched over higher demand for funds.

For the last one year, daily lending volume has remained within Tk 50 billions. Interest on the short term loans has varied between 6 to 7 percent. The call money market remained stable during the last Eid as well.

With rising demand for funds, the Bangladesh Bank stepped in on Wednesday by providing banks with liquidity of around Tk 70 billion.

The day before, banks took Tk 64.61 billion. In the last seven working days, call money transactions have touched Tk 55.92 billion.

Why call money rates are rising despite market liquidity!

Meghna Bank executive director Nurul Amin told bdnews24.com:"Despite lazy liquidity, ready-to-invest cash is low with most banks. That is because they have invested a lot in bills and bonds. That is why call money transactions are going up."

But Amin says this tight situation is 'very temporary' and predicts it will remain so until Thursday.

Because Thursday is the last working day before the Eid and Durga Puja holidays, the call money rates may soar further due to intense demand, bankers said.

Though there is sufficient liquidity in the market, the funds are parked in few banks, especially four state-owned banks.

Private banks have mostly invested their funds, mostly in government's treasury bills and bonds.

With demand for funds high in the festive season (with Durga Puja and Eid-el-Azha just two days apart), call money rates are bound to rise, says bankers.

On Wednesday, bank branches were crowded with scores of customers keen to withdraw cash. The withdrawals depleted liquidity at the branches and drove up call money rates.