The Bangladesh Bank (BB) on Thursday injected Tk 45 billion into banks, through Repo (Repurchase Order) facility, to support the increased cash requirement of banks for catering to the growing demand of clients ahead of Eid-ul-Azha.
Scheduled bank branches in the city dealt with a huge rush of clients withdrawing cash in last working day on Thursday. The increased demand for cash is to meet festival and household expenditures, and disbursement of salaries by industries and corporations.
Long queue for withdrawal of cash at bank counters were found during visits to several bank branches in the commercial hub of Motijheel area from the morning until 4:00pm. Some bank branches also provided cash withdrawal services even after 4:00pm under special arrangements.
Talking to media, the central bank officials have said the banks requiring additional cash took part in Repo bidding at the cut-off rate of 6%.
"We have approved Tk 45 billion for some 11 banks, two of them are state-owned commercial banks," says Md Khurshid Alam, general manager of debt management department of Bangladesh Bank.
He said the central bank was monitoring the behavior of banks closely, on interest rates at call money market, and duly provided the liquidity support to meet banks’ emergencies.
State-owned Rupali and Janata banks borrowed a significant amount under the repo facility, he informed.
Khurshid said banks borrowed Tk 9.64 billion on Wednesday, Tk 2.71 billion on Tuesday, and Tk 649.2 million on Monday.
According to him, lending rate at call money market went a little higher on Thursday than the previous day. The debt management department recorded the highest rate of lending at 5% while the lowest was 4.5% yesterday.
Therefore, the weighted average lending rate went up a little higher, to 4.61% on Thursday, compared to 4.56% on Wednesday.
The volume of money lent at call money market was Tk 33.64 billion on Thursday.
In this regard, the BB official observed that lender banks were found unwilling to release funds (Thursday) resulting in the lower amount of borrowing at call money market.
"I find no other reason. Demands were there," he said.
The amount borrowed from call money market was Tk 64.34 billion on Wednesday, and Tk 70 billion the previous day, according to statistics of the Debt Management Department.
The call money market experienced a moderate rise in demand for cash ahead of Eid-ul-Azha, pushing up the interest rates.
The weighted average call money rate had reached 4.54% on Jun 30, before the Eid-ul-Fitr celebrations.
The weighted average rate was 4.46% on Jul 31, this year.
In the banking system, call money is an overnight borrowing facility. Borrowing here takes place with a single-day’s notice. Such borrowing may be renewed every following day, with competitive interest rate, based on lender-borrower relations, he elaborates.
The BB official said the central bank wanted to maintain stability in interest rates in call money market with sufficient flow of funds.
The Eid-ul-Azha is one of the biggest festivals of the Muslims, and clients usually rush to banks for cash, driving the banks and non-bank financial institutions to a poor financial state, making them borrow on call from the money market.
Beside the money market, banks can also borrow from the central bank under the repo facility to meet their emergency cash requirements.
Usually, NBFIs largely depend on call money market as they are not eligible for repo facility.