A file photo shows a man counting wads of taka notes in Dhaka. Overnight borrowing by banks in the interbank overnight money market increased by 65% or Tk 1,19,698 crore in the first two months (Jan-Feb) of 2022 compared to the same period of 2021 as banks observed higher credit demand after a gradual increase. restoration of economic activities. — New Age Photo
Overnight borrowing by banks in the interbank overnight money market increased by 65% or Tk 1,19,698 crore in the first two months (Jan-Feb) of 2022 compared to the same period of 2021 as banks observed higher credit demand after a gradual increase. restoration of economic activities.
According to Bangladesh Bank data, bank borrowing through the interbank demand money market increased to Tk 3,04,545.72 crore in the first two months of 2022 from Tk 1,84,847.26 Tk crores over the same period of the previous year.
Demand for cash in the money market has increased as demand for credit from the private sector has just started to climb amid the resumption of business and economic activities.
The latest data from the BB showed that credit growth to the private sector had increased to 11.07% at the end of January. The growth rate was only 8.35% at the end of June FY21.
The forecast growth rate for fiscal year 2021-22 has been set at 14.8%.
BB officials said lower-than-expected borrower recovery on disbursed loans was a major reason for demand for liquidity in the interbank money market.
The year-over-year growth of reserve money or M1, BB notes or paper money or coins in circulation outside the BB, has fallen significantly in recent months after recording massive growth in the during fiscal year 22.
BB data showed that the central bank, in different forms, injected money into the economy after the coronavirus outbreak, pushing the reserve currency’s growth rate to 22.35% during of exercise 21.
The central bank’s objective behind the injection of increased liquidity was to support economic recovery.
Year-on-year growth, however, fell to 7.33% in January 2022.
When compared to the amount of reserve currency in June 2021, M1 fell by 7.12% in January 2022.
The reserve amount was Tk 3,48,071.80 crore in June 2021 and the amount fell to Tk 3,23,298.90 crore at the end of January 2022.
BB officials said the central bank in the first half of FY22 took the initiative to contain the money supply after the amount of excess liquidity in the banking sector hit a record high of 2.31 crore Tk.
In the first half of the year, the central bank resumed the auction of BB bills after more than three years.
Apart from this, strong selling of US dollars to meet import expenses has also automatically reduced the monetary circulation.
So demand for cash at banks was up, as was demand in the overnight money market, BB officials said.