Call money rate highest in 4 months at 5.83%

The call money rate escalated to 5.83% on Thursday, the highest in the last four months, on the back of a cash withdrawal pressure, according to central bank data.  

The call money rate is the rate at which banks lend overnight money to each other. If the transactions between the lenders and borrowers edge up, the rate soars.

On Thursday, banks and financial institutions transacted Tk3,792 crore between them. The amount was Tk4,435 crore on Wednesday and Tk3,435 crore on Tuesday.

Apart from the overnight basis transactions, Tk505 crore on a seven-day notice at 7.63% interest and Tk837 crore on two-week notice at 6.08% interest were borrowed from the inter-bank call money market on Thursday.

Mentioning the rate hike does not mean a liquidity crisis, central bank spokesperson Abul Kalam Azad said the central bank injects liquidity in the market through repo and assured support.

"The fluctuation of the exchange rate in inter-bank transactions is a normal liquidity management process," he noted. 

The call money rate rose sharply to 5.85% on 7 July on the back of a huge cash demand, central bank data show. However, the rate was normal in the days before and after as bankers generally do not pay much attention to the specific overnight rate.

However, the call money rate started hovering around 5.8% following a 25-basis point hike in the repo rate to 5.75% – the interest rate at which the central bank lends money to commercial banks – on 29 September. It rose to 5.83% on Thursday, following the trend throughout October and November.

The weighted average rate in the call money market has not been this high since 2016, excluding the abrupt jump on 7 July.

In conditions of anonymity, a top central bank official at the Monetary Policy Department told The Business Standard that there is nothing to panic about as banks had borrowed money at much higher rates in the past. 

Mentioning that people are withdrawing their deposits owing to rumours, the official said this has been causing bumps to liquidity management of banks.

"Those who are withdrawing money do not actually understand the reality. In a situation like a liquidity crisis, the central bank can handle it by increasing the liquidity supply in the market. This is a normal process," he commented.

The central bank said it currently has an excess liquidity of Tk1.70 lakh crore – which crossed Tk2.31 lakh crore in August 2021. 

The central bank said it sold $5.87 billion from the forex reserves till 16 November in FY23. This has mopped up Tk55,000 crore from the banking channel. The Bangladesh Bank in FY22 mopped up Tk60,000-Tk70,000 crore after selling $7.62 billion from the reserve.

A number of treasury department officials of several public and private banks said banks are not willing to lend at low interest rates in the call money market as dollar sales from the reserve handled the excess liquidity. 

For overnight lending to another bank, banks are charging similar to the repo rate as there is an instruction of the central bank in this regard. 

However, banks charge more than the rate for lending to non-banking financial institutions (NBFIs). Therefore, if these institutions increase borrowing from the bank channel, the call money rate also shoots up.

Golam Sarwar Bhuiyan, managing director of the Industrial and Infrastructure Development Finance Company (IIDFC) Limited, claimed the NBFIs have no role behind the increase in the call money rate.

Like banks, he said the NBFIs are also witnessing deposit withdrawals.   

"We are trying to convince our customers that we don't have any problem with liquidity. No bank or NBFI has gone bankrupt since the country's independence in 1971," he told The Business Standard. 

Claiming that the call money rate is increasing due to the cash appetite of the banks, he said, "We are not borrowing much from the call money market. Despite the liquidity stress, we are trying to collect the loans and reduce the non-performing loans to boost money flow."