Call money rate was the 14-month highest on Monday thanks to a sudden increased demand of cash in banks as investment has risen in various sectors after the Covid-19 epidemic situation improved recently.
On Sunday, interbank call money transaction was worth Tk8,378 at a rate of Tk3.14 although the number of transaction did not increase significantly.
Concerned parties say that after fixing the minimum interest rate on bank deposits, many banks are not able to pay interest on the deposit. At the same time, although the deposits of many banks have decreased, the amount of loans remained the same. Yet, banks have to save Advance Deposit Ratio (ADR) and Statutory Liquidity Ratio (SLR) against deposits and loans. That is why banks are relying on the money market and its rates are rising sharply.
One week ago, on 7 November, the amount of call money transaction was Tk8,748 and the rate was Tk2.27.
Central Bank data says the call money rate was Tk1.78 in January, which rose to Tk2.8 in May and dropped to Tk2.25 in June. The rate was below Tk2 in August but since the first week of November it started rising.
Bank officials said deposits at most banks were declining. In addition, the banks have to keep 13% of money in the form of SLR with the central bank against the loan. So, the banks are more inclined to the money market to collect money, as a result of which the money market rate is increasing.
A senior official of the treasury department of a state-owned bank said demand for loans has grown significantly with the improved Covid-19 condition. Banks with large general deposits are investing in various central bank bills and bonds rather than investing in the money market. Due to the liquidity crisis in the money market, its exchange rate is increasing.
He added that the demand for money from banks was huge in the money market on Tuesday. On Tuesday, the amount of loans of banks is the same as the previous day, but the average market rate would be more than 4%.
In this regard, Jamuna Bank Managing Director Mirza Ilyas Uddin Ahmed told TBS the banks' liquidity went up during the epidemic. At present, Covid-19 has come down and investment has increased. Consequently, liquidity is decreasing. The banks consider where they can invest and which one would be more profitable. Many banks are investing in central bank's bond-bill because of good interest rates. As a result, less amount is disbursed in the money market and its rate is increasing.
The call money rate from bank to bank was Tk0.5-0.6, which has increased. On the other hand, the rate of bond-bill of the central bank has increased. As a result, the lending banks prefer bond-bill to money market, he added.
However, Agrani Bank Managing Director Mohammad Shams-ul-Islam said many people think that the rate in call money market rate is increasing as government banks have invested in central bank's bill-bond, which is not true. Central bank bills and bonds are open to all. Everyone can invest there if they want.
"The increase in call money rate reflects that the country's economy is recovering. The rate is increasing as investment in various sectors has grown following the improved situation of the epidemic," he added.
Meanwhile, according to the central bank's report, the number of banks whose deposit growth was negative on 30 September stood at 10 – Brac Bank, Dhaka Bank, Jamuna Bank, Mutual Trust Bank, NCC Bank, Prime Bank, Standard Bank, Shimanto Bank, Shahjalal Islami Bank and Alfalah Bank (foreign).
Conventional banks can lend Tk87 against a deposit of Tk100 and Islamic banks can lend Tk92. This is known as debt-to-deposit ratio (ADR).