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The demand for liquid cash has surged in the banking sector with the banks’ daily average borrowing from the call money market increasing by 48.42 per cent or Tk 3,043.4 crore in three days up to Tuesday before Eid-ul-Azha compared with that in the previous week.
Eid-ul-Azha, one of the biggest religious festivals of the Muslims, will be celebrated in the country on July 10.
Bankers said that the demand for liquid cash increased ahead of Eid amid spike in the festival-centric business and economic activities.
It is a common phenomenon in the country’s banking system, they said, adding that the banks needed to pay much higher liquid cash to their customers than the regular amount before Eid-ul-Fitr and Eid-ul-Azha, the two major festivals of the Muslims.
To meet the instant cash demand, many banks have to borrow money from other banks holding more than required cash in their vaults, they said.
Bangladesh Bank data showed that the banks’ daily average borrowing from the call money market was Tk 6,285.3 crore between June 26 and June 30, but the amount increased to Tk 9,328.7 crore between July 3 and July 5.
The average call money rate rose to 4.88 per cent on Tuesday while the highest rate in the previous week was 4.62 per cent.
The situation, however, was different before Eid-ul-Fitr and Eid-ul-Azha in 2021 when the country was passing through high infections of Covid-19 and restrictions to tackle the pandemic, and so Eid-centric economic activities were limited.
Before the two occasions, borrowing of the banks from the call money market was around Tk 3,000 crore.
Injection of a huge amount of money into the banking system through several refinance schemes and stimulus packages by the central bank after the Covid outbreak was the main reason for the low cash demand.
Due to the injection of a huge amount of liquidity into the banking system by the central bank, the excess liquidity in the banking system rose to a record high of Tk 2,31,463 crore in June 2021 from Tk 1,03,358.12 crore in January 2020.
To get rid of the excess liquidity to contain inflation, the central bank mopped up money from the banking system throughout the financial year 2021-2022.
As a result, the amount of excess liquidity in the banking system dropped to Tk 1,86,596.04 crore in April 2022.
The amount would decline even further in the current financial year 2022-2023 as the central bank has announced a contractionary monetary policy to tame inflation.
(NA)
