Bangladesh’s money market showed tentative signs of relief in August as banks scaled back borrowing from the central bank’s repo window while leaning more on overnight funding and standing facilities.
Total call money turnover edged down 0.6 percent to Tk 116,125 crore that month, the first monthly dip since May. Overnight transactions rose slightly, accounting for nearly 88 percent of the market, while the weighted average overnight rate slipped 9 basis points from the previous month to 9.98 percent in August.
Despite the modest decline, the rate remains about 120 basis points higher than a year ago, underscoring persistent tightness in short-term liquidity.
The sharper adjustment came in the repo market. Interbank repo transactions fell 16.5 percent to Tk 25,325 crore, with overnight repos making up half the volume. Rates there softened to 9.90 percent, down 21 basis points from July.
Meanwhile, borrowing from Bangladesh Bank’s own repo facility dropped almost 30 percent to Tk 109,351 crore, with banks largely tapping 14-day repos after the 28-day tenor remained suspended.
Yet pressure on funding lines has not fully abated. Banks turned more aggressively to the Standing Lending Facility (SLF), drawing Tk 26,332 crore in August – nearly 50 percent more than in July.
Deposits in the Standing Deposit Facility also ticked up, reflecting a shift in central bank intermediation rather than a clean easing of conditions.
Government borrowing requirements eased as well. Treasury bill issuance declined by 7 percent to Tk 31,500 crore, while cut-off yields across maturities edged lower, ranging between 10.12 percent and 10.37 percent.
Bangladesh Bank Executive Director Dr Md Ezazul Islam told TIMES of Bangladesh that the shift was no accident.
“Tighter monetary policy and a stable exchange rate have kept overall conditions under control. Our dollar purchases have injected more liquidity into banks, and fresh deposits have also flowed in. But with private sector lending slowing, banks are now borrowing less from the central bank,” Islam said.
With money market rates clustering around the central bank’s policy corridor near 10 percent, analysts expect the central bank to maintain its balancing act in the coming months – tightening liquidity just enough to restrain inflation, while ensuring that short-term funding channels remain intact.
