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Central bank intervenes to maintain money, forex market stability
Siddique Islam
1/17/2005
The Bangladesh Bank (BB) has employed its relevant management tools to keep both inter-bank money and foreign exchange markets stable ahead of the Eid-ul-Azha festival, official sources said.
The central bank has already put in place tools, including the repurchase agreement (repo), and allowed overdraft (OD) facility to the commercial banks to meet their the growing demand for US dollar and local currency to ensure comfortable liquidity situation in the market, the sources added.
"We will definitely use our instruments to keep the markets stable in the near future," a BB senior official told the FE Sunday, adding that the central bank may accept the bids from the commercial banks and financial institutions through repo auctions if it needed be.
Sources in the BB said the central bank has applied its instruments as 'balancing strategy' between two markets taking into account the latest situation of the national economy.
Meanwhile, the inter-bank call money rate marked a sharp rise to the maximum of 20 per cent Sunday against Saturday's peak at 12 per cent, following the higher demand for cash ahead of the Eid festival, sources in the banking sector said.
Some private commercial banks and non-banking financial institutions (NBFIs) suffered from sudden shortage of liquidity and they resorted to overnight borrowing at call to meet immediate requirements of their clients. It resulted in a sharp rise in call rate, they observed.
The call rate mainly ranged between 10 per cent and 17 per cent against Saturday's range between 7.0 per cent and 12 per cent. A few deals, however, settled between the private commercial banks and NBFIs at 20 per cent on the day.
On the other hand, the government borrowed a total of Tk 2.36 billion Sunday through the auction of treasury bills. On the other hand, Tk 9.24 billion will be injected into the market in this week due to maturity of some treasury bills. It will result in a net inflow of Tk 6.88 billion into the market within a couple of days.
The inflow of fresh funds into the market due to maturity of some treasury bills may offset the pressure on liquidity and prevent unusual fluctuations in call rate in coming days, fund mangers noted.
"The central bank will also be able to manage the foreign exchange market if it injects greenback through the sate-owned Sonali Bank," a fund manager of a commercial bank told the FE.
He said that the BB is likely to off-load necessary amount of greenback from its foreign exchange reserves to ease the pressure on the market.
The next auction of treasury bills will be held Wednesday next instead of Sunday in line with the Eid holidays, the sources noted.
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