Bangladesh Bank cuts repurchase fee and reserve ratio to inject liquid money into economy

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The central bank today cut both policy rate and cash reserve ratio (CRR) once more to inject liquid funds into the market to push through the ongoing monetary fallout stemming from the coronavirus pandemic.

The regulator of the banking sector reduced banks' CRR by 100 basis points to 4 percent, a move that could inject about Tk 12,800 crore in to the economy, said a central bank official who includes a direct hyperlink to the matter.

The cash reserve ratio determines the part of customer deposits that professional banks must keep as a reserve with the central bank authority.

Employing the reserve ratio, the central bank can easily, in effect, control the number of liquid funds that circulates throughout the market -- an increased CRR means the banking institutions must hold bigger reserves and so tighten the flow of cash.

Bangladesh Lender also slashed the policy or repurchase agreement fee (referred to as the repo charge) by 50 basis details to 5.twenty five percent to make funds cheaper for banks.

The reduced repo rate means banks can get more usage of central bank funds if needed at a lesser rate of give back, thus enabling commercial banks to deal with the impending financial recession as efficiently as possible.

In Bangladesh, the repo level may be the central bank policy charge (CBPR), which may be the rate that is employed to implement or signal the financial policy stance. Beneath the repo programme the repayment period of the repo is definitely between one day and 28 days according to the central bank's restrictions.

The brand new CRR would take effect from April 12, as the lower repo rate will be effective from April 15, according to a central bank notice delivered to all lenders.

"The new instructions will help implement the bailout plans declared by the primary minister in the wake," the central bank said its notice.

The global Covid-19 pandemic has already established an adverse effect on the country's economy and the latest measures will ensure the option of liquid funds in the amount of money market, it said. 

The majority of the banks are facing cash withdrawal pressure in recent days and nights as persons want to keep cash in hand during the crisis period.

On March 23, the central bank cut the CRR by 50 basis items to 5 percent and the repo fee by 25 basis points to 5.75 percent.

The central bank supplied money around Tk 6,400 crore at the first phase by method of cutting the CRR.

But, the central bank has been pressured to ease both monetary tools once again today due to the ongoing liquidity crunch in the banking sector, the BB official said.

Banks will have to keep up with the statutory liquidity ratio (SLR) and CRR against their total depositors' funds.

Every lender now maintains 13 percent SLR of their deposits under Bangladesh Bank guidelines.

The central bank must take additional policy measures to implement the bailout package of Tk 72,500 crore as banks must provide Tk 50,000 crore of the stimulus programme from their own sources. 
Source: https://www.thedailystar.net

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