To curb inflation, Bangladesh Bank has slashed the loan amount provided to state-owned and private banks via repurchase agreements (repos) by 10%. This move aims to regulate the money supply, with recent reductions in funds provided to banks. The central bank cites excess liquidity in the market, potentially impacting inflation. While traditionally reserve-based, monetary policy now hinges on interest rates, although adjustments are made based on indicative targets for money supply. Critics argue that tightening money supply may prompt banks to inflate their loan requests, undermining the central bank’s efforts. Amidst rising demand for funds, especially ahead of Eid, challenges in cash flow management persist, exacerbated by recent dollar sales from reserves. The impact of reduced reserve money on the market remains to be seen, with banks borrowing at elevated rates in the call money market.
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