Bangladesh Lender cuts repurchase price and reserve ratio to inject liquid money into economy
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 financial 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 into the economy, said a central bank official who includes a direct website link to the matter.
The money reserve ratio determines the part of customer deposits that commercial banks must keep as a reserve with the central bank authority.
Employing the reserve ratio, the central bank can certainly, in effect, control the amount of liquid funds that circulates in the economy -- an increased CRR means the banks must hold bigger reserves and therefore tighten the move of cash.
Bangladesh Bank also slashed the insurance policy or repurchase agreement amount (referred to as the repo amount) by 50 basis factors to 5.25 percent to create funds cheaper for banks.
The reduced repo rate means banks can get more access to central bank funds if needed at a lesser rate of go back, thus enabling commercial banks to tackle the impending financial recession as efficiently as possible.
In Bangladesh, the repo level is the central bank policy rate (CBPR), which may be the rate that is utilized to implement or signal the monetary policy stance. Beneath the repo programme the repayment length of the repo is normally between 1 day and 28 times as per the central bank's restrictions.
The new CRR would take effect from April 12, as the lower repo rate would be effective from April 15, according to a central bank notice delivered to all lenders.
"The new instructions will help implement the bailout packages declared by the prime minister in the wake," the central bank said its notice.
The global Covid-19 pandemic has already established an adverse impact on the country's economy and the most recent measures will ensure the option of liquid funds in the amount of money market, it said.
A lot of the banks are facing cash withdrawal pressure in recent days and nights as people want to keep cash in hand through the crisis period.
On March 23, the central bank cut the CRR by 50 basis things to 5 percent and the repo amount by 25 basis factors to 5.75 percent.
The central bank supplied money around Tk 6,400 crore at the first phase by way of cutting the CRR.
But, the central lender has been forced to ease both the monetary tools once again today due to the ongoing liquidity crunch found in the banking sector, the BB official said.
Banks must keep up with the statutory liquidity ratio (SLR) and CRR against their total depositors' funds.
Every bank now maintains 13 percent SLR of their deposits less than Bangladesh Bank guidelines.
The central bank will need to take extra 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.
