SOHEL PARVEZ

The interest rate on overnight borrowing and lending in inter-bank trade hit 8.07 percent by the end of last week, the highest in more than a decade, reflecting a tight liquidity crunch in the banking sector.

“There is a crisis of taka and dollar in the market and the call money rate is a reflection of that,” said the treasury chief of a private bank seeking to remain unnamed.

Bankers said increased government borrowing through treasury bills and bonds from the banking system alongside the purchase of dollars by banks from the Bangladesh Bank (BB) have been driving up the overall interest rate in the money market since July, when the central bank removed the cap on the lending rate.

It introduced the Six Months Moving Average Rate of Treasury Bill (SMART) as a benchmark in order to allow the interest rate to become more market based, a decision that came following long-standing calls from analysts to lift the cap in order to fight stubbornly high inflation, which averaged 9.37 percent in October.

The data from the central bank showed that the highest monthly weighted average call money rate was recorded at 12.82 percent in 2012.

Since then, the interest rate for overnight lending and borrowing began to fall and hit as low as 1.67 percent in February 2021 as the economy slowed amid the Covid-19 pandemic.