Bangladesh Banks (BB) recent interventions have proven successful in alleviating the liquidity squeeze and dollar shortage faced by commercial banks, according to industry experts.
The central bank implemented the following three-pronged approach of Swap Currency Trading; Standing Lending Facility (SLF) and Higher Deposit Rates to improve the situation.
Swap Currency Trading: This program allows banks to temporarily exchange excess dollars for Bangladeshi taka (BDT) with Bangladesh Bank, with a repurchase agreement. This provided banks with immediate taka to address short-term needs.
Standing Lending Facility (SLF): Banks gained access to loans from Bangladesh Bank at the prevailing policy rate (currently 9.5 per cent ) through the SLF. This facility helped banks manage temporary liquidity shortfalls.
Higher Deposit Rates: Banks responded by offering increased interest rates on deposits, further bolstering their liquidity.
Improved Dollar Situation:
These measures, coupled with other factors, contributed to a significant improvement in the dollar situation:
Lower Imports: Reduced imports, guided by the central bank, lowered demand for dollars.
Increased Remittances: A surge in remittance inflows from Bangladeshi expatriates strengthened dollar availability.
Export Earnings Growth: Increased export earnings further bolstered the countrys dollar reserves.
Residents Foreign Currency Deposit (RFCD) Accounts: This new scheme allows individuals to deposit foreign currency with banks, earning interest and enabling uncontrolled foreign currency spending.
The interventions have yielded positive results:
Reduced Call Money Rates: The interbank call money rate, reflecting short-term liquidity, has dropped from over 9 per cent to 8.9 per cent.
Lower Loan Interest Rates: Increased liquidity led to a decrease in average interbank lending rates from 9.41% to 8.90%. This could translate into lower loan interest rates for borrowers.
Stable Government Bond Rates: Interest rates on government treasury bills have remained steady, indicating a controlled interest rate environment.
"The swap facility has been a game-changer," said Abdul Mannan a private banker said "It provided much-needed taka to meet our short-term requirements and eased the liquidity pressure."
"The central banks proactive measures have addressed the dollar crunch effectively," commented a senior central bank official. "We are closely monitoring the situation and will continue to make adjustments as needed to ensure financial stability." While the situation has improved, some uncertainties remain. The future direction of the dollar price and overall market trends are yet to be determined. Bangladesh Banks continued monitoring and policy adjustments will be crucial in maintaining financial stability in the long term.
