Central bank makes bold move to support shaky economy

The Bangladesh Bank has taken a bold move today to boost the economy with cheap taka by cutting cash reserve ratio (CRR) by 100 basis points to 4 percent, releasing around Tk13,000 crore fresh liquidity in the banking system.

In another move, the central bank slashed the repo rate by 50 bps to 5.25 percent, making money cheaper for banks.

Bangladesh Bank's monetary policy committee made the decision at an emergency teleconference meeting on Wednesday.

This is the second time in two weeks that the central bank slashed the repo rate and CRR. On March 23, it cut the repo rate by 25 bps and the CRR 50 bps.

"The rates have been cut to increase money supply and implement the fiscal measures announced by the prime minister recently to tackle the impacts of the coronavirus on the economy," said a senior Bangladesh Bank official.

Repo rate, at which the central bank lends money to commercial banks, is a tool practised by the Bangladesh Bank to control money supply into the economy and inflation as well.

On the other hand, the CRR or cash reserve ratio is the percentage of total deposits a bank has to keep with the central bank or in its vaults to help depositors get cash in emergency needs. Banks cannot invest the money.

Early this week, the prime minister announced four packages of fiscal measures to support the affected industries, including manufacturing sectors and SMEs. Two packages worth Tk50,000 crore will come directly from the banking system.

The government will only subsidise half of the 9 percent interest rate at which banks will lend to affected enterprises.