The central bank will directly purchase treasury bonds and bills at market price from commercial banks
The Bangladesh Bank will provide cash support to banks through buying back government securities, if necessary, to tackle the possibility of panic withdrawal amid growing concerns of a lockdown due to the coronavirus pandemic.
Under the process, the central bank will directly purchase treasury bonds and bills at market price from commercial banks.
Senior officials of the central bank held a meeting in this regard with Governor Fazle Kabir in the chair on Sunday and issued a circular on the same day.
The move came amid mounting pressure from various quarters for reducing policy rates as a precautionary measure to tackle any unexpected cash crisis in the near future.
On Saturday, the Centre for Policy Dialogue (CPD) recommended the government to inject additional money into the economy to fight the challenges arising from the global outbreak of coronavirus, formally known as Covid-19.
The think tank suggested that the injection of money can be done by lowering policy rates and buying treasury bills from the commercial banks.
Responding to a query, Bangladesh Bank's Executive Director Abu Farah Md Naser said, "Though banks have enough liquidity, the central bank will provide cash support if any bank needs so. As the demand for loans is low, dropping the policy rate is not required now.
"Presently, the banks have more than Tk1 lakh crore in excess liquidity in their hands."
Meanwhile, a senior executive of the central bank who attended the meeting, said, "The central bank has projected that the cash hoarding tendency among people may increase in the near future due to the coronavirus pandemic, which will likely create a cash shortage in banks.
"As a precautionary measure, the central bank is opening up the opportunity for banks to take cash support."
The banks have investment in treasury bonds and bills under tenures of one year, two years, five years, ten years, fifteen years and twenty years. They maintain their statutory liquidity reserve with the treasury bonds and bills.
If any bank has excess investment in government securities, it can sell those to the central bank to collect cash, said the circular.
In Sunday's meeting, the central bank also decided to issue a set of instructions to the banks detailing safety measures to tackle the spread of coronavirus.
As per the decision, every bank has to provide hand sanitisers to their customers. Board meeting can be held through video conference. Any training programme with more than 10 attendees must be postponed.
Giving more details, Executive Director of the central bank Abu Farah Md Naser said, "We instructed banks immediately to follow this safety measure. And if any banker falls sick and shows coronavirus symptoms, he or she has to go on leave immediately.
"But banks cannot close any of their branches. Moreover, every branch must have enough cash to allow customers to withdraw the money they need. If any bank closes any branch, customers may panic."
Last week, the Bangladesh Bank came up with a bundle of packages, including a six-month moratorium on loan repayments, in a bid to protect the economy from the shock of the coronavirus fallout.
The central bank on Thursday issued a circular asking all scheduled banks not to classify any loan until June 30 even if a borrower fails to repay loans.
A moratorium is a period during the loan term when a borrower does not need to make any repayments. In other words, it is a waiting period before repayment resumes.
In another circular, the central bank relaxed foreign exchange regulations for trade transactions and extended the facilities as well to help businesses offset the impacts of the pandemic.