The interbank loan interest rate surpassed 9.5%, a level unseen since 2012, as liquidity shortages intensified in Bangladesh’s banking sector. On January 23, 2024, banks borrowed Tk 2,476 crore at an average interest of 9.57% due to heightened demand from cash-strapped banks and the government, surpassing available supply.
The liquidity crunch is attributed to the Bangladesh Bank’s dollar sales to banks and a policy rate increase aimed at curbing inflation. Last week, the policy rate rose by 25 basis points to 8 percent, marking the eighth consecutive increase. Banks with surplus funds are favoring government treasury bills or interbank deposits for higher returns, elevating overnight loan interest rates.
Liquidity constraints worsened with the central bank’s dollar sales to facilitate import payments, further impacting the market. Despite a repo intervention from the central bank, the interest rate surge on overnight loans signals a significant fund shortage.
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