To mop up Tk 3,000cr aiming to contain inflation
Bangladesh Bank on Monday raised the cash reserve requirement by 50 basis points to 6.5 per cent for scheduled banks to curb inflationary pressure on the economy, said officials of the central bank on Monday. A BB official told New Age that the central bank would mop up around Tk 3,000 crore from the banks by increasing the CRR, also known as cash reserve ratio, as the banks had excess liquidity amid a dull business condition.
Under the new rules, the scheduled banks will have to maintain 6.5 per cent CRR with the central bank from their total demand and time liabilities on a bi-weekly basis.
The BB issued a circular to managing directors and chief executive officers of all banks in this regard asking them to maintain the new CRR ratio from today (Tuesday).
The banks will have to maintain the CRR at 6.0 per cent instead of the existing 5.50 per cent on daily basis, but the bi-weekly CRR will have to be 6.5 per cent, according to the BB circular.
The new CRR comes after a gap of more than three years and six months. The central bank last increased the ratio by 0.5 percentage points to 6.0 per cent on December 1, 2010.
The central bank, however, unchanged the rate of statutory liquidity ratio (SLR) at 19 per cent.
The BB official said that the central bank took the initiative due to increasing trend in excess liquidity in the banks amid sluggish business situation.
‘Besides, the inflationary pressure has recently increased. Due to the central bank move, the inflation may decline in the months to come as the BB will mop up huge amount of money from the market as part of its latest initiative’, he said.
The country’s point-to-point inflation in May increased by 0.02 per cent to 7.78 per cent as consumer price index of some food items rose, according to the Bangladesh Bureau of Statistics data.
The rate of inflation also increased by 0.32 per cent in May from that of 7.48 per cent in April this year.
Due to the excess liquidity, the scheduled banks are now investing Tk 6,500 to Tk 8,000 crore with the BB’s every auction of Reverse Repo, he said.
The banks invested Tk 6,927 crore with the rate of interest of 5.25 per cent in the Reverse Repo on June 19, according to the BB data.
Economist AB Mirza Azizul Islam, who was a former finance adviser to the caretaker government, told New Age on Monday that the latest CRR policy would not put negative impact on the financial market as excess liquidity in the banking sector maintained an increased trend in the recent period amid sluggish business.
The credit demand from the private sector is slow which pushed up the idle money in the banks along with the non-bank financial institutions, he said.
Against the backdrop, the new CRR policy will help contain the inflationary pressure, Aziz said.
Former BB governor Salehuddin Ahmed said the new CRR policy might slightly discourage the entrepreneurs due to contractionary money supply.
The profitability of the banks will decline in the coming months due to the new rule, he said.
Salehuddin said, ‘I have not found any solid ground for increasing the CRR right now as the new policy will not bring any major positive impact on the market.’
BRAC Bank managing director Syed Mahbubur Rahman said that the money supply in the market would decline due to the latest CRR initiative by the central bank.
-With New Age input
