The New Nation - Internet Edition

Pulack Ghatack

Bangladesh Bank has been withdrawing money from banks through repeated auctions of reverse repo and treasury bills, as the banking system is flooded with huge extra liquidity, informed sources said.

Since first week of July, the Government has also started to borrow money from the banking system by issuing treasury bonds and bills as it projected to receive in the new fiscal year's budget. Government yesterday received Tk 400 crore long-term loans by issuing bonds.

The Government will take Tk 1050 crore from the banking sector on an average per month to fulfil its budgetary target of around Tk 13,500 crore loan to cover a part of Tk 30,580 crore deficit.

The present caretaker government will not have to repay the loans during its tenure, as the loans are termed for one year to 20 years.

The government is set to borrow Tk 13,498 crore from banks to finance the heavily indebted budget of Tk 99,962 crore for the 2008-09 fiscal year, which the businesses fear would create a crowd-out situation for the private sector.

Bangladesh Bank on Tuesday accepted five bids of one-day reverse repos worth 748 crore taka at a 6.50 percent interest rate.

On Monday, the bank also accepted seven bids of one-to-seven day reverse repos worth 918 crore taka at the same interest rate.

Officials of the central bank said that it would auction 125 crore taka worth of 20-year government treasury bonds next Tuesday.

Currently, government treasury bills (T-bills) are sold through auctions to adjust government borrowing from the banking system. The T-bills have 28-day, 91-day, 182-day and 364-day maturity periods.

Some officials of various banks also admitted of having as much as Tk 1000 crore excess liquidity with them.

"Actually we are putting the money with the central bank as the market does not demand the excess liquidity that we have," a fund manager of a private commercial bank told this correspondent yesterday.

He, however, said, "The situation will not last long. You will see the money market to face shortfall tomorrow (Thursday). Call money demand will also rise."

At present the call money rate is far below single digit. It was only 6.5 per cent yesterday.

There had been a decrease in the excess liquidity amounting to Tk 2859 crore in the banking system in April, as demand for private sector credit increased.

Excess liquidity on April 30 stood at Tk 9337 core, which was Tk 12196 crore on March 30 of this year and Tk 14279 crore on June 30 in 2007.