Taming coronavirus rampage: BB rises to the occasion
Within an unprecedented move, the central bank yesterday said it'll buy Treasury bills and bonds from banks and non-bank finance institutions (NBFIs) to tackle the impending monetary slowdown brought on by the coronavirus pandemic.
The federal government securities from the secondary bond market will be purchased in a way that liquidity management of banks and NBFIs will not face any impediment as a result of coronavirus pandemic, according to a central bank notice.
The central bank will choose the securities out there rate, which will be determined by auction.
The interest on the federal government securities was between 7.10 % and 9.10 % according to the immediate auctions.
The decision has come following the Reserve Bank of India had declared to buy bonds on the open market for a total of Rs 100 billion ($1.35 billion) to safeguard its economy from the ongoing crisis arriving from the novel coronavirus outbreak.
The central bank rarely purchases T-bills and bonds from banks.
"This is the first-time that the central bank has issued such a notice formally. We had to change seeing the marketplace is facing extreme liquidity crunch," said a Bangladesh Bank official.
Banks will be allowed to sell their T-bills and bonds after holding their statutory liquidity ratio (SLR).
Lender hold the majority of the surplus liquidity in the form T-bills and bonds. Excess liquidity in the banking sector stood at Tk 105,646 crore by December this past year, according to data from the central bank.
Experts welcomed the quantitative easing programme, saying it'll provide a lifeline to the neighborhood industries as banks can inject funds easily.
Quantitative easing (QE) is a kind of unconventional monetary policy in which a central bank purchases longer-term government securities or other styles of securities from the open market to be able to improve the money supply and encourage lending and investment.
Buying the securities adds new money to the economy, and in addition serves to lower the rates of interest by bidding up fixed-income securities.
But experts said the central bank must have fixed a selling amount of bills and bonds, which central banks of other countries have previously done so.
"This is an excellent decision beyond doubt. However the central bank must have mentioned it in its notice how much bills and securities it could purchase," said Ahsan H Mansur, executive director of the Policy Research Institute.
The central bank should purchase government securities worth Tk 25,000 crore in a way that lenders can provide you with the required cash to the private sector, which have been hit hard by the ongoing financial meltdown.
The BB should immediately slice the policy or repurchase agreement rate (Repo) with a view to keeping the economy afloat.
Md Serajul Islam, spokesperson of the BB, told The Daily Star on Saturday that the central bank was now focusing on the issue and have a positive decision would be used the quickest possible time.
Another central bank office said the monetary policy committee of the BB will discuss this issue today.
Mansur said that repo rate should be cut at least two percentage points from the prevailing 6 per cent.
The central bank can improve the Repo rate when the problem becomes normal, he added.
Salehuddin Ahmed, a former central bank governor, echoed exactly like Mansur.
"The central bank should form a great number of fresh refinancing schemes. Ant it will cut the interest rate of refinancing scheme, which is now 5 per cent," he added.
Syed Mahbubur Rahman, managing director of Mutual Trust Bank, expressed gratitude to the central bank, saying it could have a positive effect on the money market.
He went on to urge the BB to cut the interest on refinance scheme as banks had counted 5 % interest on the schemes when the lending rate was 12-13 %.
Beneath the refinance scheme, the central bank provides fund to banks and NBFIs at 5 % interest, and lenders give out loans to borrowers imposing yet another interest of 4-5 %.
The central bank earlier formed several refinance schemes to greatly help manufactures and women entrepreneurs.
The BB should slice the interest on its refinance schemes by 2-3 per cent given the gravity of the problem, said Rahman, also the recent past chairman of Association of Bankers, Bangladesh, a forum of managing directors.
He echoed exactly like Mansur, saying policy rate ought to be cut at least two percentage points.
