Call money rate reaches decade-high at 7.23%

The average call money rate – the interest rate at which a bank borrows from another overnight – reached 7.23% on Thursday (5 October), a day after the central bank's policy rate was hiked to control inflation.

This is the highest interest rate in the call money market in nearly 10 years.

Earlier in 2013, the highest rate was 7.78%, said central bank sources.

On Thursday, the total transaction with a repayment period of 1 to 90 days in the call money market was Tk5,374 crore. The average interest rate was 7.23%, with two banks borrowing Tk80 crore together with a repayment period of 32 and 90 days at a maximum interest rate of 9.50%.

Meanwhile, the highest interest rate on one-day term was 8.50%, and the lowest was 6.50%. Through this, Tk4,661 crores have been transacted in 104 deals.

Bankers claimed that the central bank wants to control the instruments in its hand to keep inflation low, that is why the Bangladesh Bank increased the policy rate to 7.25% on Wednesday (4 October) from the previous 6.5%.

This has affected the call money market, since the policy rate affects other rates as well.

So far, the maximum interest rate for bank loans was 10.20% in. On Wednesday, it was increased by 0.50% to 10.70%.

Managing Director and CEO of Mutual Trust Bank Syed Mahbubur Rahman told TBS, "The increase in policy rates is being reflected in the call money market. Money will be tighter now. As a result, private credit flow of banks will further decrease."

He said, the call money market was a means of liquidity management for the banks. Increase in this rate means pushing the banks toward imposing higher interest rates for loans.

Another bank's treasury head told TBS, if the banks borrow at a higher rate, they have to increase the rate at the customer level as well.

However, they have to keep the interest rate within a limited range. As a result, the profit of the banks will decrease, he added.

He also said that the government is taking thousands of crores of taka from the banks to meet the deficit budget, but they are keeping the the rate of treasury bills low.

This rate should be further increased, he demanded. If the government takes money from the banks at a cheap rate, the liquidity market of the banks will dry up.

According to Bangladesh Bank data, the average call money rate in December 2022 was 5.80% while it was 4.88% in June that year.

Call money rate started increasing from 21 March 2022.