Treasury Weekly Report

W- 26/2020

On the radar

Summary statement of MPS FY 21: Policy & Key rates (%)

In view of COVID-19 pandemic, FY: June - July FY-19 FY-20 FY-21 (MPS)
sizeable reduction in repo, reverse Repo (Policy rate) 6.00 5.25 4.75
repo and along with Bank’s rate for Rev. Repo rate 4.75 4.75 4.00
maintaining the expansionary and Bank rate 5.00 5.00 4.00
accommodative stance as long as CRR 5.50 4.00 4.00
necessary to revive growth, mitigate SLR (CRR included) 18.50 17.00 17.00
the impact of COVID-19 and preserve CPI Inflation 5.47 5.65 5.40
financial stability, while ensuring that GDP 8.15 5.20 8.20
inflation remains within the target.

Impact of COVID-19 on our Economy

 World Bank wings IDA approved soft loan of USD 202 million for modern food storage facilities project
and the loan will have five years grace period with concessional interest rate.
 Budget deficit may shot up to 10% of GDP in FY-21, overall budget deficit will be Tk. 1.90 trillion but
last fiscal year it was Tk. 1.53 trillion.
 BB announced of credit guarantee scheme of Tk. 20.0 billion for small enterprises, this will share the
credit of private commercial banks so that the loan process will accelerate.
 Private sector credit growth in June was 8.61% far below the target level 14.8%, though Banks are
having surplus liquidity due to business instability condition for pandemic.

Key Market Developments

 Central Bank unveil MPS of FY 21 on July 29, with the view to support COVID affected economy by cutting
the Repo rate 50 basis point to 4.75% so that Govt. securities yield will fall down further and Banks will
have abandon liquidity to loan the private sectors.
 Govt. set the borrowing target from banking sector of BDT 849.83 billion in this fiscal year and through
Saving Certificate of BDT 250.0 billion, in July the net borrowing from Gsec stood of Tk. 125.21 billion
and in August it will be of Tk. 42.01 billion.
 Central Bank has injected cash currency of Tk. 392.07 billion in last five months, at the end of May it
stood at Tk. 2.11 trillion and in Feb it was Tk. 1.71 trillion.
 Govt. paid 14.60% of its revenue collection on debt service payment and only 4.30% on health sector. In
South Asia Bangladesh got the fourth position in debt service payment followed by Sri Lanka.
 Thirteen Banks has already got the clearance from their Board to invest in capital of Tk. 2 billion under
special repo rate – confirmed by the Chairman of BSEC.
 BB forex reserve makes a record of USD 37.18 billion end of July, the reserve increase significantly during
this seven month of USD 4.5 billion, at end of December 2019 it was USD 32.68 billion and our
neighboring county India also hits a record of USD 522 billion.
 Central Bank purchase dollar from interbank in this month of USD 1,184.0 million and the total
purchase from June to July of USD 1,729.0 million. By purchase dollar BB injects of BDT 100.40 billion
in this month.
 Inflation in June 5.65 that is slightly increase from the previous month May 5.61.
  Money circulation outside of Banks increased abruptly during pandemic by 21% in June compare to
January and Deposit growth is only 3.79% in June compare with January.
Components Currency Outside banks (billion) Total Deposit with DMBs (billion)
June, 2020 1,923.84 11,810.25
May, 2020 1,937.51 11,570.96
April, 2020 1,776.22 11,475.46
January, 2020 1,589.18 11,378.86

Domestic Market developments and Liquidity Condition

- G-sec total maturity in this month of TK. 111.01 billion and T-bond coupon interest 6.48 billion against
this auction amount is 190.00 billion and BB maturity has of Tk.34.08 billion so market net negative
gap will be of Tk. 72.51billion.
- Money Market transaction was Tk. 83.55 billion as on July 29 and weighted average rate was 4.96%,
rate slightly improves compare of its last week due to Eid cash withdraw from banking system (Tk. 70.0
billion approx.).
- Remittance inflow will be record due to Eidul Adha, the net inflow is USD 1,961.27 million till July 23,
and expected that it will cross of USD 2.0 billion at the end of this month.
- Outstanding balance of BB LSF through Repo and ALs increase due to Eid and currency outside of Banks
as on July 29 it was Tk. 57.0 billion (approx.).
- BB kept the rate unchanged at 84.80 of USD BDT end July but June end it was 84.85.

Comments
 On the liquidity side, Central Bank will continue to purchase dollar from interbank and refinance the
loan especially for SME sectors. Cash withdraw from banks will be injected in this week and other fund
inflow will keep market liquidity throughout the month.
 On the rate side, cut down of repo rate will guide the market one step down in the rate side and on
top of, too much liquidity in Banks and uncertain to recover from this pandemic force Banks to reinvest
in Govt. securities and for that reasons rates going down and it will continue.
 As the currency outside increase significantly in June of Tk. 335.0 billion slightly improve form May
with compare to January, Bank’s lose the capacity to lending of its customer at the desirable level.
 Remittance inflow may surpass USD 2.0 billion due to Eid festival and workers lost their jobs, prepare
to come back home country.
 BB forex reserve will increase more as the remittance inflow is good and low import payment. But the
reserve needs to be utilize, once the payment get its normal outflow.
 USDBDT rate will be remain stable in this week at interbank rate 84.80 as on July 30 and interbank
corporate customer settle their LC at close of this level due to heavy inflow of remittance and slow
growth of import.
 This week Treasury bills auction of 91 days and 364 days of Tk. 10 Bn and Tk. 20 Bn respectively. The
rates will fall drastically and will come close to repo rate.
 T-bond auction of 2 yrs of Tk. 20 Bn will be in this week and the rate will fall 100 basis point or even
more.
Global market Key developments

 Asian stock markets ended largely in red today. Australia ASX (-2.04%), Kospi (-0.78%), Nikkei (-2.82%)
and Hang Seng (-0.47%) ended in red while Shanghai Composite (0.71%) ended in the green today.
 Dollar index (DXY) is trading flat at 92.99 level this session after extending its sell-off driven by
uncertainty about fiscal stimulus and rising COVID-19 cases in the US. The historical fall of USD GDP to
 32.9% QaQSaar in 2Q2020 and second weekly rise in unemployment claims weigh on the dollar. The
EUR/USD is trading 0.12% lower at 1.1832 level after Eurozone GDP contracted of 12.1% QoQ for
2Q2020, missing the expected contraction of 12% against a contraction of 3.6% reported in 1Q2020.
GBP/USD is trading 0.31% higher at 1.3162 level amid dollar weakness shrugging off new lockdown in
parts of northern England. USD/JPY is trading 0.21% higher at 104.94 level this session technical rebound
to oversold position amid short-covering. However, sharp upside is unlikely given persistence dollar
weakening trend.
 US treasuries are trading flat. The US 10 Y benchmark is trading at 0.54% that is relatively unchanged
from the previous close.

Commodity market developments

 Gold is trading 1.28% higher today as amid anti-USD trade and weakening economic outlook in the US
after record GDP fall in the second quarter. The further slide in US bond yield led to yellow metal
reaching a fresh record high. Gold is trading at USD 1972.0/oz.
 Oil is trading 0.51% higher today as supported by a recovery in China Manufacturing PMI, which beat
estimates with 51.1 in July and weakening the dollar. But the oil demand concerns due to the rise in
COVID-19 cases caps further gain in the oil prices. Brent and WTI are trading at USD 43.46/barrel and
USD 40.22/barrel respectively.

Disclaimer
This report is prepared to be used for information purposes only. It is not, under any circumstances, to be used for market making and/or strategic decisions. It’s
intended to share market information and it will not be responsible to bear any financial or business loss taking any decision based on it.