Liquidity crisis: How effective government, BB interventions? Essay
The current liquidity crisis that has afflicted the economy has generated much debates and discussions. The government and the Bangladesh Bank (BB) were supposed to take necessary initiatives and they did take some policy measures. The measures are: (a) reverting to Advance-Deposit Ratio (ADR) of 85 per cent from 83.5 per cent declared previously; (b) reducing the Cash-Reserve Ratio (CRR) by 1.0 per cent; (c) moving 50 per cent of government deposits lying with the public banks to private banks for easing the crisis. Whether these will solve the problem depends on proper identification of the causes behind this grim situation of liquidity which is still posing a threat to macroeconomic stability, and thereby, to sustainable growth. A number of reasons existed which led to the present harsh reality. Let us look at the problem at first from the supply side. As deposit interest rates declined to a low level, people started withdrawing their deposits from the banks ...