Consumer confidence has rebounded strongly in recent months as reflected in money movement indicators, with people releasing their pent-up demands, especially for travelling, following the vaccination roll-out.
Moreover, soaring commodity prices amid rising inflation are forcing consumers to spend more.
The drastic fall in demand deposits with banks, which show disposable income, declined by Tk9,000 crore in June-September, indicating that consumer spending has made a strong return.
The demand deposits grew at above 20% in almost every month last year when people were cooped up in homes due to movement restrictions amid rising Covid-19 cases that prompted consumers to hold more cash on hand to face any unexpected health expenditure.
The rise in demand deposits had mostly contributed to the pile up of overall deposits in the banking sector during the pandemic.
The trend of money indicators has now reversed as cash on hold declined significantly in September. At the same time, growth of demand deposits followed a declining trend.
Cash on hold declined by around Tk4,000 crore in a month from August to September, according to the Bangladesh Bank data, while demand deposits declined by Tk4,000 crore in September from the previous month.
Bankers say the decline in cash on hold and demand deposits indicates that people are investing money in the real sector. Small businesses, who could not run business during the pandemic owing to various restrictions, came back to business with their cash money.
The sliding demand deposits slowed down the overall deposit growth in the banking sector.
In September, the overall deposit growth slowed down to 11.26%, which was above 13% last year.
Concerned for safety, people held more cash in hand during the pandemic and also eschewed direct banking, said Md Arfan Ali, managing director of Bank Asia.
With the normalisation of lives, money-holding patterns have changed as people are now purchasing goods, travelling for recreation, causing a decline in cash on hold and demand deposits, he added.
Rising inflation also increased people's daily expenditure, forcing them to spend more, he further added.
Inflation rate continued to rise for several months, reaching 5.59% in September owing to rising prices of food and non-food items.
In August, inflation was 5.54%, according to data from the Bangladesh Bureau of Statistics (BBS).
Prices of almost all kinds of daily essentials, such as rice, egg, wheat, garlic, onion, ginger and turmeric shot up in September. The rising credit growth also indicates a rise in consumer expenditure.
The consumer loan grew by 3.46% in the April-June quarter, which was negative 2.58% in the same period last year, according to the Bangladesh Bank data.
Although the latest data on consumer loans is not yet available, bankers said it has remained upward.
Credit demand has increased significantly in recent months, pushing lending rates up, said Jamuna Bank Managing Director Mirza Elias Uddin Ahmed.
Citing an example of his bank, Mirza Elias said they were lending at 3%-4% in the last year, but the rate has now increased to above 7% amid rising credit demand.
The average lending rate in the overall banking industry is also on an upward trajectory as borrowers are now aggressive for loans, he added.
"We approved a loan limit for many clients last year, but they did not avail the facility owing to uncertainty about the Covid-19 situation. But in recent months, they are taking the approved loan facility, which ultimately pushed credit growth up," the Jamuna Bank managing director said.
People are now purchasing goods, shopping and travelling. Dollar price is now high, which also reflects that consumers are spending for travelling, he noted.
Imports have significantly increased in recent months, which mainly contributed to credit growth.
Besides, the apparel sector is performing very well and exports are rising significantly, also raising demand for credit, he added.
Rising credit demand has already put pressure on money rates. Lending rates, call money rates, bond rates all are now on the upward trend and the banking sector may soon face a liquidity crunch, he predicted.
Credit flow to the private sector registered an 8.77% growth in September from 8.42% in August, according to the Bangladesh Bank data.
Bangladesh recorded its highest ever single-month export earnings amounting to $4.16 billion in September.
Import expenditure registered 47.59% growth in the July-September period, which was in negative territory in the last year.
With the strong rebound in import and export growth, the Fitch Solutions has revised up the forecast of private consumption growth to 8.5% for FY22 from 5.5% set previously.
In its recent projection report on Bangladesh released in September, Fitch said "Improved Covid-19 vaccination progress will help sustain the economic recovery and consumer spending accordingly."
Consumer spending rebounded globally, speeding up the economic recovery. The United States and China, the two largest economies, experienced a spur in consumption in recent months, mostly driven by high inflation.
US consumer spending rose more than expected in June as vaccinations against Covid-19 boosted demand for travel-related services and recreation, but part of the increase reflected higher prices, with annual inflation accelerating further above the Federal Reserve's 2% target.
Consumer spending, which accounts for more than two-thirds of US economic activity, rebounded 1.0% in June after dipping 0.1% in May.
Retail sales, a key gauge of Chinese consumption, unexpectedly increased 4.9% in October from a year earlier, higher than September's 4.4%, according to a media report.