To curb inflationary pressures by reducing the influx of money into the market, the Bangladesh Bank undertook various initiatives, such as tightening its monetary policies.
Their efforts are now yielding positive results, evident from a consistent decline in the amount of Taka outside the banking system for the third consecutive month.
Comparing the initial three months of the current fiscal year (FY24) to June, the final month of FY23, a whopping Tk38,408 crore has been reintegrated into the banking system from the market.
The most recent data released by the central bank indicates that the total amount of money outside the banking system stood at Tk253,505 crore.
This shift has contributed to an improvement in the liquidity situation within the banking sector, marking a positive trend in the ongoing efforts to stabilize and regulate the financial landscape.
However, the volume of banknotes outside the banking system have grown significantly in FY23.
Data analysis revealed that from June 2022 to June 2023, money outside banks have significantly increased by about Tk55,000 crore or 23%.
Out of this, the flow of money outside banks increased by about Tk36,000 crore or 14% in June itself.
However, this situation has started to change from the first month of FY24.
Currency held by individuals outside of banks amounted to Tk291,913.5 crore at the end of June (the last month of FY23) this year.
Then from July money started to be returned to the banks. In July, currency outside banks was Tk266,354 crore and by the end of August, this figure had decreased to Tk258,356.3 crore.
Mezbaul Haque, executive director and spokesperson of Bangladesh Bank told Dhaka Tribune: “To bring down the inflationary pressure, our objective was to reduce the money flow in the market. That is why the monetary policy has been tightened, which continues even now.”
“Besides, during this time various banks have been offering good internet rates on deposits for the past few months. I think these factors are helping bring money back to the banks. The decrease in money outside the banks is a good sign for us as well,” he added.
Bankers also said that people previously preferred holding cash due to low confidence in the banking sector, largely attributed to loan irregularities, high inflation, and also for low saving interest rates.
Then in July, the central bank removed interest rate caps on deposits and lending.
Many banks subsequently raised their deposit rates, resulting in increased deposits and the easing of banks' liquidity crises.
On the other hand, businessmen are saying that the upcoming election is a significant concern for them. So they are hesitant to make major investments before elections.
As a result, private sector credit growth is also falling every month.
