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   Assignment ON Call-money rate rises Prepared For Md. Yousuf Harun Instructor Department of Business Administration East West University Prepared By MD. GOLAM RABBANE ID# 2012-1-10-256 Course: Financial Institutions and Markets (FIN 335) Section: 03 Date of Submission: 01 st  October, 2014  Liquidity crisis doubles call money rate Submitted by priyodesk  on Tue, 01/11/2011 - 12:40am The high demand for cash of the nationalized commercial banks (NCBs) on Monday doubled the inter-bank call money rate. Bangladesh Bank (BB) data showed that the call money rate jumped to a new high of 15 per cent on Monday from just 7.5 per cent on Sunday. The volume of  borrowings by the state-owned Agrani Bank and Sonali Bank was Tk. 850 crore and Tk. 225 crore, respectively, while privately held Uttara Bank borrowed Tk. 400 crore at the rate of 15 per cent, according to mid-day report of the central bank. According to the central bank, the call money rate would continue its uptrend until the last transaction day before the Eid-ul- Azha, as banks’ demand for cash remains huge to help their clients make payments of salaries and bonuses ahead of the greatest festival of the Muslims. The NCBs suffer a shortage of cash due to the need to make payments against petroleum imports, and to facilitate government borrowing against treasury bills and bonds to meet budget deficit, sources said. Several private commercial banks and non-banking financial institutions are also facing an acute liquidity crisis, triggering an additional demand for cash and, consequently, pushing up the call money rate higher, the sources added. “The NCBs have been the worst sufferers of th e deepening liquidity crisis, though some private commercial banks have got some bruises,” said a top official of the central bank.  He said the banks were desperate to mobilize cash and demanded a higher ceiling of up to 25  percent as against the current 15 percent fixed by the apex bank.  The central bank is closely observing the developments and it would pump in money to help the  banks, if needed, by tweaking the repo rate, the official said. “We can’t afford to let loose the call money rate right now,”  he further said. Traditionally, the call money rate moves high before the Eid-ul-Azha. In August 2011, just  before Eid-ul- Fitr, it went through the central bank’s ceiling of 20 per cent and hit 25 per cent, the central bank official noted. In November (before the festival) last year, the highest-ever rate of inter-bank borrowing stood at 37 per cent as against the lowest-ever 6.5 per cent. He said that the volume of inter-bank  borrowings had stood at Tk. 9,109 crore last year on the eve of the festival. However, the situation is different for the banking sector this year. The banks have lost money in the capital market and, last year, channelled a heavy credit flow into the private sector, which together resulted in the cash crunch, he said. News Source: The Independent
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