Bangladesh Bank yesterday increased the rate for daily cash reserve requirement (CRR) against deposits by 50 basis points to help banks manage liquidity better than before.
In line with the past rules, all banks had maintained a monthly CRR of 5 percent on average. On a daily basis, the rate had been no less than 4 percent -- a ratio which was hiked to a minimum requirement of 4.5 percent by the central bank yesterday.
A high official with Bangladesh Bank said the banks had normally maintained 4 percent at the beginning of the month. In an attempt to maintain 5 percent on average throughout the month, bankers had often created a volatile situation in the call money market.
But the BB official would not see the latest move as a tight monetary policy.
The required reserve ratio is a bank regulation that sets the minimum reserves each bank must hold to customer deposits. The reserves are designed to satisfy withdrawal demands and would normally be in the form of fiat currency, or with a central bank.
The reserve ratio is sometimes used as a tool in monetary policy, influencing the economy, borrowing and interest rates.
Source: The Daily Star, January 14, 2009
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