The average call money rate, the interest rate at which a bank borrows from another overnight, reached 9.13% on Wednesday, the highest in 11 years.
Bangladesh Bank data showed that banks borrowed Tk3,187.42 crore from the call money market on the day.
This demand pushed the weighted average rate to a staggering 9.13%, marking the highest since 2013.
The entire of 2012 saw an average call money rate of 12.82%.
Banks are obligated to maintain the Cash Reserve Ratio (CRR) against deposits. To meet this requirement, they are forced to borrow at higher interest rates.
Banks lend overnight money to each other to fill the asset-liability mismatch or to meet sudden demand for funds. The market was introduced in the country in the early 1980s.
A tight liquidity condition leads to an increase in the call money rate and excess funds push the rate down.
According to the Bangladesh Bank report, the average call money rate in June this year was 6.05%, increasing slightly to 6.42% in July.
The rate rose to 7.23% in October a day after the central bank's key policy rate was hiked and went up to 8.53% at the beginning of December.
The central bank has raised the key policy rate or repo rate — the interest rate at which the central bank lends money to commercial banks — several times this year to curb inflation. However, the repo rate hike increases banks' cost of funds.