Bangladesh Bank Steps in to Support Cash Flow in the Midst of Coronavirus Outbreak

The central bank announced the decision in a notice on Monday as fears of the coronavirus spread deepened with six new cases. The repo rate is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds. A repo rate cut is an incentive for banks to borrow funds from the central bank. The reverse repo rate will remain unchanged at 4.75 percent.

Bangladesh Bank also reduced the cash reserve requirement, or CRR, for all banks to 5 percent from 5.5 percent, effective from Apr 1. CRR is a tool to increase or decrease the money supply. Reserve requirements are the number of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals.

The scheduled banks are currently required to maintain CRR at 5.5 percent with the Bangladesh Bank on a bi-weekly average basis with a provision of a minimum of 5 percent on a daily basis. The ratio has been reset at 5 percent on a bi-weekly average basis with a provision of minimum of 4.5 percent on a daily basis.

Both the repo rate cut and the CRR reduction are the first since April 2018.

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