In a notable policy reversal prompted by a liquidity crunch, the Bangladesh Bank has resumed providing cash support to commercial banks, according to bankers. This shift from a contractionary monetary policy, initially aimed at curbing inflation, comes amid challenges such as a costly dollar, loan defaults, and rate increases depleting banks’ cash reserves.
The central bank had recently tightened the money supply, leading to a decline in formal credit stocks and an increased reliance on interbank borrowing. To address the liquidity stress, the Bangladesh Bank is now accepting all bids for cash support against government securities. This move, implemented on November 9, 2023, aims to alleviate the growing cash crunch in the banking sector. The decision has drawn attention to concerns about inflation and the need for targeted credit support to stabilize financial health.
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