Assignment

ON
Call-money rate rises



Prepared For
Md. Yousuf Harun
Instructor
Department of Business Administration
East West University

Prepared By
MD. GOLAM RABBANE
ID# 2012-1-10-256




Course: Financial Institutions and Markets (FIN 335)
Section: 03

Date of Submission: 01
st
October, 2014

Liquidity crisis doubles call money rate

Submitted by priyodesk on Tue, 01/11/2011 - 12:40am

The high demand for cash of the nationalized commercial banks (NCBs) on Monday doubled the
inter-bank call money rate. Bangladesh Bank (BB) data showed that the call money rate jumped
to a new high of 15 per cent on Monday from just 7.5 per cent on Sunday. The volume of
borrowings by the state-owned Agrani Bank and Sonali Bank was Tk. 850 crore and Tk. 225
crore, respectively, while privately held Uttara Bank borrowed Tk. 400 crore at the rate of 15 per
cent, according to mid-day report of the central bank.

According to the central bank, the call money rate would continue its uptrend until the last
transaction day before the Eid-ul-Azha, as banks demand for cash remains huge to help their
clients make payments of salaries and bonuses ahead of the greatest festival of the Muslims.

The NCBs suffer a shortage of cash due to the need to make payments against petroleum
imports, and to facilitate government borrowing against treasury bills and bonds to meet budget
deficit, sources said.

Several private commercial banks and non-banking financial institutions are also facing an acute
liquidity crisis, triggering an additional demand for cash and, consequently, pushing up the call
money rate higher, the sources added.

The NCBs have been the worst sufferers of the deepening liquidity crisis, though some private
commercial banks have got some bruises, said a top official of the central bank.

He said the banks were desperate to mobilize cash and demanded a higher ceiling of up to 25
percent as against the current 15 percent fixed by the apex bank.

The central bank is closely observing the developments and it would pump in money to help the
banks, if needed, by tweaking the repo rate, the official said.
We cant afford to let loose the call money rate right now, he further said.

Traditionally, the call money rate moves high before the Eid-ul-Azha. In August 2011, just
before Eid-ul-Fitr, it went through the central banks ceiling of 20 per cent and hit 25 per cent,
the central bank official noted.

In November (before the festival) last year, the highest-ever rate of inter-bank borrowing stood at
37 per cent as against the lowest-ever 6.5 per cent. He said that the volume of inter-bank
borrowings had stood at Tk. 9,109 crore last year on the eve of the festival.

However, the situation is different for the banking sector this year. The banks have lost money in
the capital market and, last year, channelled a heavy credit flow into the private sector, which
together resulted in the cash crunch, he said.

News Source:
The Independent