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MD MEHEDI HASAN and AHSAN HABIB
The Bangladesh Bank (BB) has backtracked on its decision to refrain from injecting fresh funds into crisis-hit banks in its efforts to curb persistent inflation.
Yesterday, the central bank said it had started giving money to troubled banks with depositors’ interests in mind and to prevent a bank run, which occurs when many customers rush to withdraw their funds from lenders.
While the injection of fresh funds is likely to increase inflationary pressure, the effect of any bank run would be far worse, two economists said.
However, if the banks still fail to stand on their own feet and return to the central bank for more funds, it would be very bad for the economy, they added.
“The fund injection will prove to be logical only if banks can rebound strongly,” said Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development.
“Banks should drive strongly to recover loans that are already non-performing,” said Mujeri, who is also a former chief economist of the Bangladesh Bank.
The BB’s U-turn follows a recent decision from the higher levels of the interim government to not allow any bank to collapse and cause pain to thousands of depositors, who have been struggling to get their money back from ailing lenders despite repeated attempts.
“I said earlier that the central bank would not print money to support weak banks, but we have temporarily backtracked from that considering the interest of depositors,” Bangladesh Bank Governor Ahsan H Mansur said during a press conference at the central bank headquarters on Thursday.
In September, Mansur had said that the Bangladesh Bank would not provide liquidity support to weak banks by printing money like the Awami League regime did.
Mansur added that the government and central bank are committed to ensuring the depositors’ interests. “We are providing liquidity support to those banks so depositors can get their money back.”
He said the banking regulator had provided more than Tk 22,000 crore to six crisis-hit banks.
“We hope this will be enough for them to mitigate the current crisis, but they will get more funds if needed,” Mansur said, adding that the central bank is always willing to tackle volatility in the banking sector.
“I want to assure depositors again that their money is fully safe in banks,” he said, adding that depositors would be able to get back their money from Sunday.
The injection of fresh money into the banking sector will not impact inflation, Mansur mentioned, saying the BB would adjust the funds by withdrawing excess liquidity from the banking sector by issuing Bangladesh Bank bills.
On Wednesday, the central bank introduced two more bills with much longer tenures than the three bills that were available at the time in an effort to mop up excess liquidity from the money market and rein in runaway inflation.