Call money market remains calm

The call money market, which usually gets volatile during the Eid, has remained calm this year, indicating that the financial institutions are sitting on excess funds.

On Tuesday, the highest rate in the call money market was 6 percent and the lowest 5.25 percent, according to Bangladesh Bank. The weighted average rate dropped to 5.65 percent, the lowest in six years.

The rate has gone down further to 5.5 percent yesterday, the last working day before the Eid.

The turnover in the call money market, which usually stays above Tk 5,000 crore a day, declined to Tk 1,500-2,000 crore. "The market is more than stable. Banks have enough surplus money," said a senior treasury official of a private commercial bank.

The call money rate, which is the rate at which a bank or non-bank financial institution gives short-term loans to other banks and NBFIs, hit the lowest since 2009. Even the rush for Eid spending could not revive the market.

Bankers said the government's decision to postpone the auction of bonds further has squeezed out investment scope for banks.

In May, the finance ministry asked the BB not to auction bonds until further notice, as the government does not need to borrow for now. As a result, the banks were left with more liquid money in their hands.

The market felt the impact of the government decision instantly.

The call money rate, which was 6.79 percent on May 4, went down to 5.84 percent on May 13, just a week after the postponement of the bond auction. It was over 8.5 percent in January this year.

The average call money rate remains relatively stable at 7 to 8 percent in 2013 and 2014. The rate had reached 20-22 percent during Eid in 2012.

Generally, banks borrow money from the BB ahead of Eid to meet their clients' cash withdrawal demand.

But the situation is totally different this time and the central bank is now forced to mop up liquidity to stop the market from sliding further.

The BB has mopped up over Tk 33,000 crore from the market so far this month through reverse repo, which is the process through which the central bank borrows money from commercial banks.

The central bank pays commercial banks 5.25 percent interest rate.

The inter-bank exchange rate has remained stable at Tk 77.80-77.82 per dollar, BB data shows. To importers, each dollar was sold at Tk 78.166 yesterday.