The average call money rate — the overnight interest at which a bank borrows from another — stood at 9.57 per cent on Tuesday, hitting the highest average rate after 12 years. The call money rate had previously soared to 12.82 per cent in 2012.
The banks borrowed Tk 3,037.39 crore from the call money market on Tuesday.
Market insiders believe that there are several reasons behind the increase in call money rate. Banks borrow from the call money market as they have been facing a liquidity crisis for a while, and they have been borrowing money from each other overnight.
Speaking to The Business Post, former lead economist of World Bank Dhaka Office Dr Zahid Hossain said, “The rate of standing lending facility (SLF) is 9.50 per cent, but on the other hand, the call money rate reached 9.57 on Tuesday.
“This means some of the banks did not get to borrow money at a 9.50 per cent rate from the Bangladesh Bank, so these banks borrowed money through the call money market at a rate of 9.57 per cent.”
The depositors are not renewing their scheme after maturity due to less interest, and many irregularities in the banking sector, he pointed out.
On condition of anonymity, a senior central bank official said, “Some of banks are suffering from a liquidity crisis for many years. The call money interest rate crossed the SLF rate, which means some of the banks went to other banks to borrow at the call money rate.”
According to the central bank data, the repo rate is currently at 8 per cent.
Industry insiders say the banks are continuously borrowing money from the Bangladesh Bank through repo to tackle the liquidity crisis.
Some Shariah-based banks have failed to submit statutory liquidity ratio (SLR) and cash reserve ratio (CRR) to the central bank. As a result, five Shariah-based banks are continuously taking support from the Bangladesh Bank.
“There are many banks that cannot avail repo with the Bangladesh Bank due to the restrictions,” a senior central bank official on condition of anonymity.
UCB Managing Director Arif Qadir said, “The rise in call money rate will raise our cost of funds, which in turn will ultimately narrow our balance sheet [or decrease loan disbursement]. Since the lending rate of banks is controlled by the regulator, interest income will also go down.
“As per the central bank’s Six Months Moving Average Rate of Treasury Bill (SMART), banks are offering 11.89 per cent interest on lending. So, the situation is impacting the banks’ balance sheet directly.”
Banks usually borrow money from each other in three ways – call money loans for a day, short-notice loans for two to 14 days, and term loans for 91 to 180 days. Although the central bank has issued verbal instructions on call money rates, it has no say in the rates of short-notice and term loans.
