Govt to relax cash reserve ratio at banks to ease liquidity crisis

The government has decided to cut cash reserve ratio or CRR of banks by 1 percentage point to 5.5 percent in an attempt to ease the liquidity crisis at the banks.

CRR, also called reserve requirement, is a minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.

Finance Minister AMA Muhith, speaking to the media after a meeting with Bangladesh Association of Banks or BAB on Sunday, said, “We are trying to cut interest rates.”

“According to the government decisions, half of government money can be kept at the private banks.

“Besides these,” he added, “We’ve decided to cut by 1 percentage point the 6.5 percent cash reserves the banks need to keep (at the central bank).”

Asked if the decisions will impact inflation, the finance minister said, “No, inflation will not rise in any way.”

BAB Chairman Nazrul Islam Mazumder told reporters the decisions would help the banks cut interest rates.

“These will bring Tk 100 billion to the market. The liquidity crisis will ease slightly once the CRR is cut,” he said.

Earlier at another programme, Muhith said the government would soon keep 50 percent of its total deposits at private banks following their demand in order to tackle the liquidity crisis.

Currently, the government keeps 25 percent of its deposits at the private banks while the remaining 75 percent of government institution assets are kept at state-run banks.