Excess liquidity in the country's banking sector has shrunk in the first two months of the current fiscal year.
Interbank borrowing from the call money market is increasing as a result of the lack of liquidity.
At the end of August, the amount of excess liquidity in the banking sector was Tk1,74,177 crore, according to data from the Bangladesh Bank.
High inflation, according to experts, is causing a decline in the public's tendency to deposit money in banks.
One month earlier, in July the excess liquidity in the banking sector was Tk1,89,910 crore, which was Tk2,03,435 crore in June.
In the first two months of the current fiscal year (July and August), this important indicator in the banking sector fell by Tk29,258 crore.
The excess liquidity is calculated after maintaining the required Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).
It is mandatory for banks to maintain a 4% CRR of total deposits in cash form and a 13% SLR in non-cash form with the Bangladesh Bank.
Requesting anonymity, a central bank officer explained to Dhaka Tribune that the supply of foreign currency is less than the demand so there is an ongoing dollar crisis in the currency market.
To solve the issues, the central bank has sold excessive amounts of dollars to the banks to meet the demand.
On the other hand, banks are buying this currency with taka, for which they are losing liquidity.
The annual credit growth in the private sector increased to about 14.07% in August and the excess liquidity in the banking sector is shrinking, he added.
Speaking on if there could be any major changes in inter-bank transactions as a result, the official said that in order to meet the cash crisis, many banks are borrowing money from Bangladesh Bank regularly.
On the other hand, interbank borrowing from the call money market is rising amid this liquidity crunch.
According to bankers, there are a few reasons behind this continuous liquidity shrinking.
The dollar shortage forced banks to buy the greenback from the central bank in exchange for the local currency.
According to the Bangladesh Bank data, it is constantly selling dollars as the supply of foreign currency is less than the demand.
In the current fiscal year, more than $3.75 billion have been sold to various banks so far.
Against the dollar sale, more than Tk36,000 crore came from the market to the central bank vault.
In contrast to the sale of $7.62 billion in FY22, about Tk70,000 crore entered the central bank from the market.
In this situation, the private sector credit growth increased to 14.07% last August, which is the highest in 45 months.
At the end of last July, the growth was 13.95%.
As part of tightening money flow, the private sector credit growth ceiling was cut to 14.1% for FY23 from 14.8% set for the previous fiscal.
On the other hand, banks are being forced to invest their excess liquidity in government treasury bills and bonds to meet the high borrowing target of Tk1.06 lakh crore set in the new budget for the current fiscal year.
Meanwhile, people's living expenses have also increased with business and trade in the post-Covid-19 period.
Bankers said that if the expenditure increases compared to the income, the saving tendency among people decreases.
Inflation was reported to have risen above 9% last August and September, the highest in almost a decade, for which deposits are not increasing as expected due to inflationary pressure.
Deposits increased by only 9.36% to Tk16,24,471 crore in one year till last June, but at the same time, the non-performing loan increased by 14.36% to Tk13,20,780 crore.
