The central bank on Sunday drained Tk7,567 crore – highest in a single day – in idle money from the banking system, through an auction of Bangladesh Bank (BB) bills.
With this, the Bangladesh Bank has so far mopped up Tk16,242 crore from banks in this auction process this year.
Bangladesh Bank bill is a monetary instrument used to mop up excess liquidity from the market.
Earlier, on 11 August this year, the central bank drained Tk6,070 crore in excess liquidity from the banking system, after it mopped up another Tk2,605 crore two days ago.
The total excess liquidity in the banking sector almost doubled in the last year and stood at Tk2.39 trillion this June. The figure was Tk1.39 trillion in the same period last year, according to Bangladesh Bank data.
Inflation is already on the rise. The inflation rate was recorded at 5.56% in FY21, overshooting the government's target of 5.40%. In June this year, inflation was 5.64% – the highest in the last eight months.
The Bangladesh Bank moved with a decision on 5 August to mop up such a huge amount of excess liquidity from banks by issuing bills, aiming to control price pressure and keep the money market stable.
High inflows of remittance sent by expatriate Bangladeshis have mostly contributed to excess liquidity as the central bank is purchasing dollars from the market injecting money.
Remittance inflows hit a record high with over 36% growth in FY21 despite the pandemic.
Moreover, during the pandemic time, the central bank reduced rates of monetary instruments like CRR (cash reserve ratio), repo and reverse repo and ADR (advance deposit ratio).
Low demand for credit in the private sector has also contributed to the piling up of surplus liquidity in the banking system.
Private sector credit growth was 8.4% in the last fiscal year against the monetary target of 14.8%, Bangladesh Bank data show.
In the new monetary policy, the Bangladesh Bank has addressed the ample excess liquidity as a concern for the money market and hinted at controlling it anytime if necessary.
The central bank issued Bangladesh Bank bills through auction after a break of three years from 29 March 2018.