• Tuesday, Dec 10, 2019
  • Last Update : 10:17 am

Higher demand for cash pushes up call money rates

  • Published at 09:29 pm August 7th, 2019
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BB controlling interest rate ahead of Eid

The call money market is experiencing a moderate rise in demand for cash ahead of Eid-ul-Azha, pushing up the interest rates in the last couple of days.

The Debt Management Department of Bangladesh Bank recorded a 4.56% weighted average interest rate yesterday. Highest rate of interest on lending stood at 5% while the lowest at 4.25%.

Before the Eid bonanza, the call money rate hovered around 3% to 3.5%.

Financially sound banks lent a total of Tk6,434 crore on Wednesday and slightly above Tk7,000 crore the previous day, according to statistics of the Debt Management Department. 

Sources said both the banks and non-bank financial institutions (NBFIs) were on the borrowers' list. 

"Mainly, NBFIs are known as borrower in the call money market. Borrowing by banks at call money market is unusual," Md Shah Alam, executive director of Bangladesh Bank, has told Dhaka Tribune.

In the banking system, call money is an overnight borrowing facility. Borrowing here takes places in a single-day notice. Such borrowing may be renewed every following day with competitive interest rate based on lender-borrower relations, he elaborates.

Md Khurshid Alam, general manager of debt management department, has said the central bank is closely monitoring movement of interest rates at call money market.

"We want to maintain stability of interest rates in call money market. We will also ensure flow of sufficient fund to the market," he says, adding that call money rate will not go beyond 5% on lending. 

Banks and NBFIs borrow on call from money market to meet short-term cash requirements.

The Eid-ul-Azha is one of the biggest festivals of the Muslims and clients usually rush to banks for cash, driving the banks and NBFIs with poor financial state to borrow on call from the money market.

Beside the money market, banks can also borrow from the central bank under repo facility to meet emergency cash requirement.

However, NBFIs largely depend on call money market as they are not eligible for repo facility.