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The central bank has not been taking deposits through reverse repo in the last two weeks to force the commercial banks to invest their colossal amounts of idle money in the market.
Published : 04 Dec 2015, 05:35 PM
To maintain liquidity flow, money is, however, raised from the market through Bangladesh Bank bills.
Explaining the rationale behind the decision, Md Abul Kashem, Deputy Governor of Bangladesh Bank, told bdnews24.com, “The central bank wants the banks to invest in businesses. That is the main purpose of the banks. Their objective should not be to earn profit by keeping depositors’ money with Bangladesh Bank.”
Commercial banks borrow money from the central bank through repo. At present BB charges interest rate of 7.25 percent on it.
Through reverse repo banks keep their surplus money with the central bank, in return for which the latter pays them an interest rate of 5.25 percent.
Generally money is borrowed or kept for just one day through repo or reverse repo.
Since Nov 16, Bangladesh Bank has not been entertaining any request from commercial banks to deposit their surplus money through reverse repo.
“For the last few days we are not taking deposits through reverse repo. But we have raised some money from the market through Bangladesh Bank bills,” Abul Kashem said.
The deputy governor said, “The central bank formulates monetary policy and accordingly takes initiatives to maintain investment and liquidity flow in the market.”
According to BB figures, it last took deposits of Tk 20.46 billion through reverse repo on Nov 15.
However, the central bank in the last two weeks took a few billions of taka for a period of 30 days from some commercial banks through Bangladesh Bank bills.
On Nov 30, the central bank received 59 bids from various banks for the purchase of Bank bills. It subsequently raised Tk 24.6 billion as against 22 bids that had offered the lowest interest rate of 4.70 percent.
According to media reports, the idle money in the banking sector in Bangladesh has crossed Tk 1 trillion.
However, Bangladesh Bank remains sceptical about terming the entire surplus money as idle.
Despite being in possession of a large amount of surplus money, banks are not showing much interest in disbursing loans.
Industrialists complain that it is not viable to take loans with interest rates of two digits. Hence, there is no investment growth.
A bank is entitled to disburse 81 percent of its deposit as loans. But as per Bangladesh Bank’s data as of Aug 27, the credit-deposit ratio is 68.75 percent.
“Banks are reluctant to give commercial and industrial loans, citing the gas crisis and political disturbances as reasons. But these are nothing new in Bangladesh.
“Moreover, of late the political situation has improved. We think an atmosphere conducive to investment has been created. Banks will have to find new areas for investment,” Abul Kashem told bdnews24.com.
