Uncertainty spurs cash stockpiling out of banks
The banks offer maximum 8% deposit rate but this is not high enough compared with the current inflation rate to encourage people to perk their cash in banks
Cash in people's hands reached Tk2.91 lakh crore till June surging by Tk36,000 crore from the previous month as pre-election political uncertainties and a global economic slowdown spooked consumers.
As per central bank data, cash in people's hands or out of banking channels amounted to Tk2.36 lakh crore by June 2022, implying the amount grew over Tk55,000 in about a year till June 2023.
Managing director of a private bank told The Business Standard that the interest rate cap of 10% prevents financial institutions from hiking deposit rates high enough to attract more cash flow. In this situation, financial institutions will not have enough earnings to cover operating costs, he added.
Keep updated, follow The Business Standard's Google news channel
The banks offer maximum 8% deposit rate but this is not high enough compared with the current inflation rate to encourage people to perk their cash in banks.
With general elections several months away, people are wary of investments and thus are prone to hold cash to themselves, the banker added.
A central bank official, preferring anonymity, told TBS that reasons behind a surge in cash out of banks include higher cash supply as opposed to the prevailing demand.
Furthermore, the inflation rate is running much higher and is more than the maximum offered deposit rate, further encouraging people to keep cash to themselves away from financial institutions, the official added.
According to the Bangladesh Bureau of Statistics, the inflation rate in July 2022 was 9.69% compared with 7.48% in the same period last year. In May, monthly inflation rate was 9.94% — highest in more than 11 years.
Higher prices of goods naturally push people to keep more cash on their person.
The dollar crisis, fall in remittances, and default scams have also contributed towards a surge in cash stockpiling out of banks. The volume of deposits at banks in the financial year ending June 2023 grew 8.44% – the lowest annual increase in six years, as per central bank data.
Central bank data claims that due to money printing currency circulation till June 2023 was Tk3.11 lakh crore up from Tk2.56 lakh crore in the same month last year, adding to cash flow out of banks.
