Banks show huge interest in 'Bangladesh Bank Bill' auction
In the wider interest of banks, only two auctions of Bangladesh Bank (BB) have mopped up a total of Tk8,675 crore of excess liquidity from banks so far.
On the second day of the auctions, they absorbed Tk6,070 crore.
Earlier on August 9, the central bank absorbed Tk2,605 crore in excess liquidity from the banking system through seven-day and 14-day BB bills.
Some 41 banks participated in the auction for 30-day bills on the second day on Wednesday and different banks purchased bills at a yield rate of 1.25%.
On the first auction day, for a seven-day term bill, the central bank's yield rate was 0.54% and for a 14-day term bill, it was 0.75%.
Giving emphasis on keeping interest rates low, former Bangladesh Bank governor Salehuddin Ahmed told Dhaka Tribune: "The interest rate in the call money market is now below 1%. The yield rate of government treasury bills is not more than 1%. In this situation, it is not right to expect much from the yield of the Bangladesh Bank Bill.”
“In this situation, if the interest rate is not low, the banks will want to invest in the central bank without giving loans to the private sector,” he added.
Despite such low-interest rates, the banks have responded extensively to the auction.
In this regard, Agrani Bank Chairman Zaid Bakht told the media that banks are not able to invest amid the coronavirus pandemic. If there is idle money in the bank, nothing is available.
“That is why what is available through this bill is profit and banks are so interested in this auction,” he added.
According to BB data, the total excess liquidity in the banking sector almost doubled in the last year and stood at Tk2.39 trillion this June. The figure was Tk1.39 trillion during the same period last year.
Inflation is already on the rise. The inflation rate was recorded at 5.56% in FY21, overshooting the government's target of 5.40%. In June this year, inflation was 5.64% — the highest in the last eight months. But in July, it came down to 5.36.
Experts say that high inflows of remittance sent by expatriate Bangladeshis have mostly contributed to excess liquidity as the central bank is purchasing dollars from the market, injecting money.
Moreover, during the pandemic, the central bank reduced rates of monetary instruments like CRR (cash reserve ratio), repo and reverse repo and ADR (advance deposit ratio).
Low demand for credit in the private sector has also contributed to the piling up of surplus liquidity in the banking system.
So, the Bangladesh Bank moved with a decision on August 5 to mop up such a huge amount of excess liquidity from banks by issuing bills, aiming to control price pressure and keep the money market stable.
BB informed that the next auction of the 10-year Bangladesh Government Treasury Bond Sale (Re-Issue) will be held on August 17 at Bangladesh Bank.