Bangladesh Bank moves to enable banks to implement coronavirus bailout

Bangladesh Bank has cut repo rate further as part of efforts to enable the banks to implement the Tk 727.5 billion stimulus announced by Prime Minister Sheikh Hasina for the impact of the coronavirus pandemic on the economy.

Abdur Rahim Badal Chief Economics Correspondentbdnews24.com
Published : 9 April 2020, 12:58 PM
Updated : 9 April 2020, 02:12 PM

The central bank lowered the repo rate by 50 basis points to 5.25 percent to boost money flow amid the outbreak.

The second rate cut in 18 days was announced on Thursday. It will be effective from Apr 12.

The repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds. A repo rate cut is an incentive for banks to borrow funds from the central bank.

The central bank cut the rate to 5.75 percent from 6 percent on Mar 23 in efforts to boost money flow before a nationwide shutdown was announced to stem the spread of the virus.

Bangladesh Bank on Thursday also reduced the cash reserve requirement, or CRR, by 1 percentage point for all banks. The new rates, to be effective from Apr 15, will be lowered to 4 percent from 5 percent on a bi-weekly average basis and to 3.5 percent from 4.5 percent on a daily basis.

CRR is a tool to increase or decrease money supply. Reserve requirements are the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals.

It would have been better if the central bank lowered the repo rate to 4 percent, said Ahsan H Mansur, Executive Director of Policy Research Institute.

“I think the government is on the right track to tackle the economic impacts of the crisis.,” he said, “But it should be careful so that loan defaulters don’t get the bailout funds.”.

“It must ensure the funds are not going to people who have their loans rescheduled under the special scheme, whose debts have been written off, and those with cases currently on trial,” Mansur added.

After a Tk 50 billion economic relief package for the export sectors to pay workers’ wage, the prime minister on Apr 5 announced the stimulus in four packages for industries and services sector damaged by the pandemic, loans for small and medium enterprises, extension of facilities from Export Development Fund and pre-shipment credit refinance scheme.