The government is addressing its financial shortfalls by issuing bonds to banks to meet electricity and fertilizer dues. Banks, in turn, are borrowing from the Bangladesh Bank using these bonds, increasing the overall money supply. However, this strategy shifts away from the central bank’s previous practice of printing money directly to lend to the government, which was halted due to rising inflation.
March saw a notable trend of cash withdrawals, with approximately Tk3,500 crore taken out by customers and not redeposited, highlighting a growing preference to hold cash outside the banking system. This withdrawal trend is linked to public distrust stemming from banking irregularities and the consolidation of banks.
Despite a robust 10% deposit growth, excess liquidity in the banking system rose by Tk5,000 crore in March, while cash excess liquidity fell by Tk2,000 crore due to increased investments in higher-yielding government Treasury bills and bonds. The ongoing liquidity stress is exacerbated by the government’s heavy borrowing and the rising interest rates, which have reached around 14%.
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