Bangladesh flooded with excess liquidity -cbank

DHAKA, April 12 (Reuters) - The call money rate in Bangladesh dropped at 0.25 percent in inter-bank money market on Sunday, the lowest in recent years as the banks are flooded with liquidity, a senior official of the central bank said.

Excess liquidity with commercial banks rose more than 60 percent to 225 billion taka ($3.26 billion) in March compared with the same month in previous year BDT=, the official said.

"It is a reflection of poor investment and less import bill against the backdrop of the current global financial crisis," said Khondker Ibrahim Khaled, the chairman of the state-run Bangladesh Agriculture Bank.

"Investors are shy and hesitating to borrow loans from the banking system in recent months," Khaled also a former deputy governor of the central bank told Reuters.

A downtrend in import payments, in the wake of the decline in commodity prices in the global market, has contributed to excess liquidity, he said.

Import orders for capital machinery dropped by more than 30 percent at the end of March, the first nine months of the financial year to June 2009, indicating a slowdown in industrial activities in recent months.

During the same period Bangladesh imported about $800 million worth of capital machinery compared with $1.11 billion in the corresponding period of last fiscal year.

Non acceptance of reverse repurchase agreement (repo) by the central bank also adversely affected the call rate, market operators said.

"The central bank is insisting the commercial banks expedite investments in productive sectors like agriculture and small and medium enterprises," Khaled said.

"Such investment will help economy overcome the effects of the ongoing economic recession," he said. ($1=69 taka) (Reporting by Serajul Islam Quadir; editing by Mike Nesbit)