The Bangladesh Bank has decreased cash reserve ratio (CRR) and repo rate to boost the country’s economy that will help increase fresh liquidity in the banking system, experts said. They said it will be helpful in implementing the Tk 72,750crore stimulus declared by the government to overcome the possible Coronavirus impact on the country's economy.
The central bank has once again re-fixed the CRR at 4.0 percent on bi-weekly average basis with a provision of minimum 3.5 per cent on a daily basis, down by 1 percent from 5 percent on bi-weekly basis and 4.5 percent on daily basis earlier, a BB circular said. This will be effective from April 15.
Besides, the central bank also reduced the policy or repurchase agreement rate (known as the repo rate) by 50 basis points to 5.25 percent to make funds cheaper for banks. The new rate will be effective from April 12. On March 23, the central bank cut the CRR by 50 basis points to 5 percent and the repo rate by 25 basis points to 5.75 percent.
Assistant spokesperson and General Manager of Bangladesh Bank, GM Abul Kalam Azad said the outbreak of Coronavirus worldwide could have adverse effects on Bangladesh's economy. As a result, Prime Minister Sheikh Hasina has announced various financial incentives, he said while adding, Bangladesh Bank has decided to ensure enough liquidity supply in the market in order to implement this incentive package.
That is why, the central bank has decreased CRR and repo rate to increase fresh liquidity in the banking sector, he added. Former governor of the central bank, Dr Salehuddin Ahmed said the central bank should have decreased the CRR and repo rate earlier as banks had faced liquidity crisis.
Finally, it has reduced the cash reserve ratio which is good for the economy, he said. “Addressing the banking sector's chronic inefficiency and weaknesses is a big challenge for proper utilisation of this money. Otherwise, more money to banks can shoot up default loans further,” he mentioned.
Former lead economist of the World Bank, Zahid Hussian said banking sector has faced cash crisis as people showed rampant withdrawal and use of cash for keeping extra food and health products in stock. “People should use digital banking for withdrawing cash when needed at the moment, which may reduce cash pressure on bank, he said adding that, use of cash has created a health risk for people.
Welcoming the Prime Minister’s move in announcing such a huge package, former financial adviser to a caretaker government, AB Mirza Azizul Islam said, the government would have to act fast in this regard by framing necessary policies and guidelines. He said the banking sector is facing liquidity crisis as the deposit money has been decreased for low interest rate.
“That is why, the government should solve liquidity crisis by providing cash support to banks, otherwise, banks will not be very interested in lending if they have liquidity crisis,” Mirza said. However, Prime Minister Sheikh Hasina has recently unveiled the government’s work plan to overcome the possible Coronavirus impact on the country's economy, declaring an allocation of Tk72,750 crore under a set of stimulus packages, which is nearly 2.52 percent of the GDP.
Earlier, the government declared a Tk 5,000 crore (emergency) incentive package for paying salaries and allowances of export-oriented industries workers and employees. The Prime Minister announced four fresh financial stimulus packages of Tk 67,750 crore including increasing public expenditure, formulating a stimulus package, widening the coverage of the social safety net and increasing monetary supply.
