Call money market heating up as normalcy returns to economic activities

​A file photo shows clients queuing up while officials in protective gears giving services at a branch of a private bank in the capital amid the coronavirus outbreak in the country. Bank borrowing from the call money market has started to heat up amid an increase in the rate of interest and amount of borrowing from the banks. — New Age photo

Bank borrowing from the call money market has started to heat up amid an increase in the rate of interest and amount of borrowing from the banks.

Normal business and economic activates were regaining normalcy after relaxation of restrictions imposed to contain the second wave of coronavirus infections since August 11.

The latest Bangladesh Bank data showed that the banks’ daily average borrowing from the interbank call money market increased by 21.88 per cent or Tk 1,633 crore in October compared with that in the previous month.

In August, the banks borrowed a total of Tk 1,64,229 crore in 22 days from the call money market with a daily average borrowing of Tk 7,465 crore.

In October, the banks’ total borrowing from the market in 13 days reached Tk 1,18,279 crore with the daily average borrowing amounting to Tk 9,098 crore.

The spike in borrowing by the banks from the interbank money market indicates that demand for money has been increasing gradually as the central bank has been mopping up excess liquidity from the banking system since August by issuing Bangladesh Bank bills.

In August and September, the central bank sold BB bills worth Tk 38,869.5 crore to scheduled banks to contain the excess liquidity in the country’s banking system.

Apart from the sale of BB bills, the central bank also pulled $1.19 billion from the local market to prevent a sudden increase in dollar prices on the interbank money market amid a significant surge in import payments after Covid restrictions were relaxed.

Against the sale of dollar, the central bank also mopped up over Tk 10,000 crore from the domestic banking system, resulting in a further decline in the supply of local currency in the banking system.

The banks were borrowing higher amounts of money from the interbank call money market due to the above mentioned reasons.

The BB data showed that the banks’ daily average borrowing from the call money market in October was 74.85 per cent or Tk 3,895 crore higher than Tk 5,204 crore borrowed on average in August 2021.

The borrowing in October was 191.5 per cent or Tk 5,977 crore higher than the daily average call money market borrowing of Tk 3,121 crore in July.

Along with the increase in borrowing, the weighted average interest rate of borrowing also increased in October.

During October 1-19, the interest rate was above 2.2 per cent whereas the rate was below 2 per cent between August 12 and September 21.

BB officials and bankers said that the call money market in the coming months might heat up further as business and economic activities reach a gradual peak until or unless the central bank changed its existing policy to reduce the money supply in the banking system.

When excess liquidity hit Tk 2.31 lakh crore at the end of June, it prompted the central bank to adopt the policy to reduce the volume of excess liquidity on the market.

Source: ​newagebd