Banks reject BB bills for low yield
The central bank could not sell any bills on the third day of auction as banks demanded higher yield
The central bank on Monday failed to mop up idle money from the banking system by auctioning bills as banks did not warm up to low yield.
According to the Bangladesh Bank, banks participated in the auction of seven-day and 14-day bills with an offer of Tk4,690 crore in total. Central bank bills are monetary policy instruments to drain excess liquidity from the banking system.
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But the central bank could not sell any bills on the third day of auction as banks demanded higher yield.
The central bank observes the situation and may not mop up the excess liquidity from the banking system as part of its strategy, said BB Spokesperson Md. Serajul Islam.
In the first auction on 9 August, banks purchased seven-day bills worth Tk1,505 crore at the yield rate of 0.54%. Sonali Bank, Janata Bank and Uttara Bank purchased 14-day bills valued at Tk1,100 crore with 0.75% as the yield rate.
Bankers say this yield rate is too low in comparison with the deposit rate fixed by the central bank recently in line with the inflation rate.
On the second day of auction on 11 August, 30-day bills were auctioned, with banks placing bids amounting to Tk6,376 crore. Banks purchased bills worth Tk6,070 crore at a yield rate of 1.25%, according to the Bangladesh Bank.
In this way, the BB has so far mopped up a total of Tk8,675 crore from banks in the first two auctions.
The total excess liquidity in the banking sector almost doubled in the last year and stood at Tk2.39 trillion this June. The figure was Tk1.39 trillion a year ago.
Inflation is already on the rise. The inflation rate was recorded at 5.56% in FY21, overshooting the government's target of 5.40%. In June this year, inflation was 5.64% – the highest in the last eight months.
The Bangladesh Bank moved with a decision on 5 August to mop up such a huge amount of excess liquidity from banks by issuing bills, aiming to control price pressure and keep the money market stable.
High inflows of remittance sent by expatriate Bangladeshis have mostly contributed to excess liquidity, while the central bank is purchasing dollars from the market. Remittance inflows hit a record high with over 36% growth in FY21 despite the pandemic.
Moreover, during the pandemic time, the central bank reduced rates of monetary instruments like CRR (cash reserve ratio), repo and reverse repo and ADR (advance deposit ratio).
Low demand for credit in the private sector has also contributed to the piling up of surplus liquidity in the banking system.
The private sector credit growth was 8.4% in the last fiscal year against the monetary target of 14.8%, Bangladesh Bank data shows.
In the new monetary policy, the Bangladesh Bank addressed the ample excess liquidity as a concern for the money market and hinted at controlling it anytime if necessary.
Then, the central bank issued bills through auction after a break of three years.
