Cash transactions sharply increase: BB Report

Inflationary pressure has increased the demand for cash with the cost of living increasing.

Cash transaction increased by 11 percent in the June quarter this year compared to the March quarter. In the March quarter, it increased by only 0.93 percent compared to the last year’s December quarter.

As per the fiscal year, cash transaction increased by 12.85 percent in the last FY compared to the previous fiscal year. In the FY21 it increased by 9.06 percent.

Cash held by the people at the end of June was Tk2.36 lakh crore, according to the Bangladesh Bank latest report titled ‘Quarterly review on Money and Exchange Rate’.

Analysts say inflation in the domestic market has increased due to the increase in commodity prices in the international market following the war between Russia and Ukraine in March. And when inflation increases, the supply of cash money also increases.

According to the Bangladesh Bureau of Statistics (BBS), country’s general inflation on point-to-point basis was 6.22 percent in March and increased to 7.56 percent in June this year.

Former lead economist of the World Bank Zahid Hussain told The Business Post that when inflation increases additional money is needed to meet the cost of living. Then cash transactions increase, which means people withdraw savings from banks to meet their daily expenses. Then money outside of banks increases.

Narrow money (M1) growth was 9.43 percent in the FY22, which was 13.62 percent in the FY21.

Demand deposit growth declined from 22.15 percent in the FY21 to 13.92 percent in the FY22. Besides, the central bank report also shows that people are withdrawing their savings from the bank.

It can be seen that the growth of term deposits in the last financial year decreased a lot compared to the previous financial year.

Growth of the term deposit was 13.35 percent in the FY2021, down to 8.2 percent in the last fiscal. At the end of June of the FY22, term deposits stood at Tk12.82 lakh crore.

In the last financial year, the growth of broad money (M2) supply in the economy slowed down significantly compared to the previous financial year. It was also much less than the target.

While the broad money growth was 13.62 percent in the FY21, it came down to 9.53 percent in the last fiscal. However, the broad money supply target was 15 percent in the FY22, according to the report.

In this context the report said the growth target of M2 supply was not achieved due to the decrease in net foreign assets in the FY22. Net foreign assets declined by 4.74 percent to Tk3.64 lakh crore in the FY22 compared to the FY21.

In this context, Zahid Hussain said the amount of net foreign assets decreased mainly due to the support given by the BB to the banking system from the reserve to maintain the exchange rate stable.

To keep the exchange rate stable, the central bank pushed $7.62 billion support into the inter-bank foreign exchange market in the FY22. The latest reserve position is $36.96 on 20 September.

Meanwhile, the real effective exchange rate (REER) at the end of June this year was Tk111.72. However, the central bank kept this rate at Tk89-93 with dollar support in the market.

But the floating rate was implemented in the second week of this September. The inter-bank dollar rate increased to Tk107.4 on 25 September.

The difference between the real effective exchange rate and the exchange rate held by the central bank has now narrowed, which is positive, said Zahid Hussain.