As Eid approaches every year, the demand for money in the interbank currency market, known as the call money market, tends to rise, resulting in an increase in interest rates.
However, this year, the call money market has shown a stable trend, with interest rates remaining relatively unchanged.
On the last working day, the rate dropped to 9.95%, down from over 10% the previous day, indicating a reduction in borrowing costs.
Typically, before Eid, there is a surge in the demand for cash as banks face increased pressure to withdraw cash.
To meet this additional demand, banks borrow from each other at higher interest rates.
During times of crisis, banks borrow from non-bank financial institutions as well.
The borrowing and lending activity in this market, generally for a single day, is known as the call money market.
During the first 26 days of March, daily transactions in the call money market averaged between Tk3,000 crore to Tk3,500 crore, with the highest interest rate reaching up to 11%.
However, on the final working day, the rate fell to 9.95%.
A spokesperson from Bangladesh Bank commented that the country's effective liquidity management prevented any liquidity crisis among commercial banks this year.
As a result, the interest rates in the call money market have decreased instead of rising.
The central bank has met the full liquidity demand of commercial banks, even providing support to a few banks facing special liquidity shortages by offering Tk30,000 crore.
This year, banks have had relatively less need to borrow in the call money market due to these measures.
Following the political changeover, the true state of the banking sector began to emerge.
Several banks faced a liquidity crisis as depositors rushed to withdraw their funds upon hearing of large-scale corruption in some banks.
To ensure deposit safety, Bangladesh Bank printed money and provided liquidity support to these banks, amounting to around Tk30,000 crore.
As a result, while some banks saw a decline in deposits, most banks experienced an increase in deposits during this period.
The strong deposit growth in banks has helped keep pressure off the call money market.
The primary reason for the stable call money market is the reduced demand for credit in the private sector.
Dr. Zahid Hussain, the former chief economist of the World Bank Dhaka Office, explained, "The lack of demand for loans in the private sector has been a major factor behind the calm in the call money market. Private entrepreneurs are refraining from making new investments, which has led to reduced demand for credit. Additionally, while the government initially borrowed heavily from banks, this has now decreased."
He added that, following revelations of loan irregularities in several banks, financial institutions have become more cautious in lending, thoroughly vetting their loan disbursements.
According to the latest report from Bangladesh Bank, deposit growth is gradually increasing.
In January, after four months of stagnation, the growth rate of bank deposits surged by over 8%, compared to the same period last year.
By the end of January, total deposits in the banking sector stood at Tk17.81 trillion, a rise of 8.28% from the previous year.
In contrast, the growth rate of loans in the private sector was just 7.15% in January, marking the lowest growth rate in recent years.
According to Bangladesh Bank data, on 25 March, a total of Tk2,133.62 crore was transacted in the call money market, with interest rates ranging from 9.75% to 11%.
On 24 March, the volume of transactions reached Tk4,074 crore, while on 23 March, it was Tk3,758 crore.
On 20 March, transactions totalled Tk4,695 crore.
This stable call money market, despite the surge in demand for cash before Eid, reflects the effectiveness of Bangladesh Bank's liquidity management and the reduced demand for private sector loans.
However, the low growth in private sector loans is seen as a potential concern for the economy, as it may slow investment and job creation.