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after a brief lull -- to take excess liquidity off the banking sector
-- but cut its interest rate by 4 percentage points. After remaining
quiet on the matter for about seven months, the central bank
announced the new plans. The banking sector is currently witnessing a
liquidity glut of about Tk 38 ,000 crore, up from nearly Tk 35 ,000
crore in June. From today, BB will offer a 2.5 percent interest
rate for reverse repo, down from 6.5 percent in March. BB officials
said the reverse repo operations will encourage banks to take part in
auctions as the reduced rate is still higher than the present call
money rate, now hovering around 1 percent amid droopy demand for
money. BB that aims to pin inflation at 6.5 percent for fiscal
2009-10 , reduced the interest rate on a lending instrument -- repo
-- by 4 percentage points to 4.5 percent -- keeping a door open for
the banks to seek loans in times of need. BB has moved to resume
short-term money market instrument operations, as monthly inflation
edged up. In July, point-to-point inflation rose to 3.46 percent from
2.25 percent a month ago. Officials, referring to excess liquidity in
the banks, said some banks are extending consumers credit because of
poor demand for loans in the productive sector. "It may cause a rise
in inflation due to a rise in demand," a BB official said. Referring
to the present call money rate, he said as demand for money in the
banking sector remains low, "it will encourage banks to lend money
to the central bank at a rate of 2.5 percent interest". "But if
commercial banks need money in the short term, they will be able to
borrow from the central bank."
