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Editorial

Sharp rise in liquidity

Devise measures to accelerate credit growth


Bangladeshpost
Published : 30 Oct 2021 08:41 PM | Updated : 02 Nov 2021 03:05 PM

The lower private sector credit growth has pushed up excess liquidity in the banking system. According to a report published in this daily on Saturday, liquidity in banking system is on the rise as the surplus liquidity stood at Tk 223,800 crore till August this year due mainly to sluggish flow of credit to private sector amid Covid-19 pandemic.

Overall deposits in the banking sector till August this year was Tk 13, 65, 492 crore, which was 1.12 per cent more than the amount of July, according to Bangladesh Bank (BB). Of the Tk 223,800 crore excess liquidity, Tk 97,600 crore excess liquidity was in the state-run banks, Tk 72800 crore in the private banks, Tk 29900 crore in Islamic private banks and the remaining Tk 23100 crore in foreign banks.


Unless the credit growth goes up and inflation 

pressure increases, the central bank should 

not remove the excess liquidity


Private sector credit growth decelerated continuously in the recent months following lower credit demand due to supply chain disruption amid the Covid-19 pandemic.

The pandemic did not reduce the income of a section of people, especially the businessmen. On the other hand, despite the increase in income, their expenses have decreased and despite having money, many of them are not showing interest in new investments.

BB can use quantitative easing measure so that monetary policy can be implemented. As we know, quantitative easing is a form of unconventional monetary policy where a central bank buys longer-term securities from the open market which increases the money supply and encourages lending and investment. 

This will definitely increase private sector credit growth.

BB should give a clear direction on how to clear up the excess liquidity. 

However, the target of the monetary policy could not be realised if the economy did not recuperate. Unless the credit growth goes up and inflation pressure increases, the central bank should not remove the excess liquidity.

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