Liquidity Imbalances Keep Call Money Rates At 13%

The interbank money market in Bangladesh has experienced prolonged liquidity stress throughout May 2026. While the interbank market typically tightens immediately prior to the Eid festival due to surges in public cash withdrawals, the current financial strain has persisted well past the holiday period.

Data from Bangladesh Bank indicates that average overnight call money rates remained firmly in double digits from the first week of May through to 24 May 2026, fluctuating between 9.90 per cent and 10.19 per cent. Concurrently, the maximum interbank rate repeatedly reached its 13 per cent ceiling, extending across multiple maturity tenors as the month progressed.

Regulatory Requirements and Liquidity Traps

According to treasury executives, the systematic strain does not stem from an absolute shortage of local currency within the banking framework. Instead, liquidity has accumulated within a small group of financially resilient, risk-averse commercial institutions. This concentration has left capital-deficient lenders dependent on the interbank market to satisfy their mandatory daily regulatory requirements.

To maintain operational compliance, banks must satisfy two primary central bank reserve thresholds: the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR).

The statutory rules and specific reserve obligations governing commercial banks are structured in the table below:

Contagion Across Tenors and Yield Curve Distortions

At the inception of May 2026, the maximum 13 per cent lending rate was largely restricted to short-notice assets, specifically the seven-day tenor on 3, 4, 6, and 7 May. However, by the final week of the month, this pricing pressure spread to 9-day and 10-day maturities, eventually affecting the 91-day term money market.

On 3 May, a 91-day loan averaged 11.87 per cent; by 24 May, both the average and maximum rates for this three-month tenor hit the 13 per cent ceiling. This shift has caused noticeable distortions in the interbank yield curve. For instance, on 24 May, 10-day loans traded flat at 13 per cent, whereas 14-day funds were priced significantly lower at an average of 10.12 per cent.

Treasury officials note that such inverse pricing structures appear when distressed borrowers are excluded from mainstream credit lines and must rely on high-yield secondary trading desks to resolve immediate cash shortfalls.

Overnight Borrowing Trends and Market Stagnation

Daily transaction volumes throughout May fluctuated between Tk 4,000 crore and Tk 6,000 crore, with up to 90 per cent of all interbank deals concentrated entirely in short-term overnight borrowing. Peak overnight volumes reached Tk 6,063 crore on 4 May and Tk 5,827 crore on 14 May, rarely dropping below Tk 3,200 crore even on quieter trading days.

By mid-month, transaction volumes contracted sharply to Tk 3,264 crore on 12 May and Tk 3,630 crore on 19 May, even as interest rates remained elevated. In tandem, longer-term interbank lending contracted severely. On 24 May, the entire 91-day term market recorded just a single transaction of Tk 30 lakh, executed at the maximum rate of 13 per cent.

An anonymous private commercial bank treasury head commented on the structural vulnerabilities of the market:

“The system as a whole is not completely short of cash, but liquidity is trapped within a few strong, risk-averse institutions. Cash-strapped banks are being forced to meet daily regulatory reserve requirements—CRR and SLR—at whatever punishing rate the market demands. Instead of managing balance sheets with stable, longer-term funding, many banks are plugging daily liquidity gaps with overnight borrowing.”

Structural Drivers and Market Participants

The freeze in long-term interbank lending indicates a decline in counterparty confidence. Cash-rich institutions are reluctant to accept credit risks extending beyond a 14-day window. This caution has been reinforced by the need to preserve capital ahead of the seven-day Eid holiday shutdown, end-of-month financial balancing, and heightened cash requirements for inward remittance payouts.

Furthermore, many weaker financial institutions lack sufficient holdings of treasury bills and bonds, leaving them ineligible to access the central bank’s standard repurchase (repo) operations and dependent on interbank lending.

The primary suppliers and seekers of capital within the current interbank framework are outlined below:

• Primary Net Lenders: BRAC Bank, City Bank, Eastern Bank, Mutual Trust Bank, Prime Bank, Pubali Bank, Dutch-Bangla Bank, Southeast Bank, Uttara Bank, and Bank Asia. These entities maintain surplus liquidity due to low private-sector credit demand, which reached a historic low of 4.7 per cent.

• Primary Net Borrowers: Islami Bank Bangladesh, United Commercial Bank (UCB), AB Bank, IFIC Bank, Premier Bank, and National Bank.