BB is doing its part. But could it be enough?
The central bank yesterday made funds cheaper for banks by reducing the policy or repurchase agreement rate (Repo) by 25 percent basis points to 5.75 per cent in order to help banks tackle the impending financial recession stemming from the coronavirus pandemic.
Besides, the regulator of the banking sector also cut banks' cash reserve ratio (CRR) by 50 basis points to 5 %, a move that would inject about Tk 6,500 crore into the economy, said a central bank official, who has a direct link with the problem.
The brand new CRR would take effect from April 1, as the lower repo rate will be effective from today.
In Bangladesh, the repo rate may be the central bank policy rate (CBPR), which may be the rate that can be used to implement or signal the monetary policy stance.
Beneath the repo programme, the central bank gives fund to banks in events of cash shortfall. The repayment duration of repo is between 1 day and 28 days as per the central bank's regulations.
Cutting the repo rate by 25 basis points could have no effect on the banking sector, Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
A lot of the banks are facing cash withdrawal pressure for the last few days as persons want to keep profit hand through the crisis period.
Banks now need a large amount of cash to determine the situation, said Rahman, also an instantaneous past chairman of the Association of Bankers, Bangladesh, a forum of managing directors of banks.
"We should try to get the experience of the global financial market. Central banks of other countries are performing a lot to protect their economy from the ongoing financial crisis emerging from COVID-19," he added.
The measures are rather inadequate given the enormity of the destruction that novel, pneumonia-like virus is leaving in its wake, said Ahsan H Mansur, executive director of the Policy Research Institute.
"The central banks of other countries are running like horses to tackle the financial recession as the Bangladesh Bank is working such as a pussycat. This kind of behaviour is not going to help build confidence available in the market."
The BB must have cut the policy rate by at least 200 basis points and brought down the Statutory Liquidity Ratio (SLR) too, he said.
"The central bank must have not intervened on the CRR. Rather, it will have cut the SLR," said Mansur, also a former official of the International Monetary Fund.
Banks have to maintain 13 % as SLR in the sort of Treasury bills and bonds against their total depositors' fund.
Although the central bank said it would purchase T-bills and bonds to inject liquid fund in to the market, many lenders won't do so as they are enjoying an excellent interest rate from the securities ranging from 7.10-9.10 percent.
Had the central bank slice the SLR rate, banks would have been forced to market their securities, that could have helped the private sector.
"Furthermore, the financial health of banks will weaken because of the CRR cut," said Mansur, also the chairman of Brac Bank.
The central bank must have also reduced the reference rate, which is using to supply fund from the refinance schemes of the central bank.
The reference rate must have been slashed by at least 250 basis points. At present, it is 5 %.
"The central bank has been rather mum relating to this," he added.
The Federal Reserve, the central bank of america, recently said it could inject $700 billion in the market. But now it really is saying it will inject as much funds the market needs, he said.
"In contrast, our central bank has yet to articulate how much funds it could supply to the market," Mansur added.
Salehuddin Ahmed, a former governor of the central bank, also echoed exactly like Mansur.
"The SLR must have been cut. These measures will not have a significant impact given the gravity of the financial meltdown," he added.
