The interbank money market in Bangladesh has faced persistent volatility throughout May 2026, with borrowing rates remaining elevated well beyond the traditional seasonal peaks. Under normal conditions, the call money market experiences temporary tightening in the run-up to the Eid festival due to heightened consumer cash withdrawals. This month, however, the elevated pricing structure has extended across the entire financial period.
According to central bank disclosures, the average overnight call money rate remained in double digits from the first week of May through to 24 May 2026, oscillating between 9.90 per cent and 10.19 per cent. Concurrently, the maximum transaction rate repeatedly hit the 13 per cent ceiling, progressively spreading into longer-term tenors.
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Regulatory Compliance and Capital Inequities
Financial analysts report that the domestic banking sector is not experiencing an absolute deficit of local currency liquidity. Instead, available capital has concentrated within a select group of risk-averse commercial institutions. This structural imbalance has forced cash-strapped financial entities to access the interbank market at premium rates to avoid defaulting on their regulatory obligations.
Commercial banks must comply with distinct reserve frameworks set by Bangladesh Bank, specifically the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR).
The operational mandates and statutory ratios under the revised March 2025 directives are detailed in the table below:
| Regulatory Reserve Line | Mandatory Ratio Target | Eligible Asset Base Components |
| Daily Minimum CRR | 3.0% of total liabilities | Cash deposits held daily at Bangladesh Bank accounts. |
| Bi-weekly Average CRR | 4.0% of total liabilities | Cumulative average cash balances across the maintenance period. |
| Statutory Liquidity Ratio (SLR) | ~13.0% for conventional banks | Physical cash, gold reserves, and unencumbered treasury papers. |
| Standing Lending Facility (SLF) | Fixed at an 11.5% penalty rate | Emergency window accessible only via sovereign collateral. |
Yield Curve Inversions and Credit Risk Spreads
At the beginning of May 2026, the 13 per cent maximum rate was largely confined to short-notice assets, notably the seven-day tenor on 3, 4, 6, and 7 May. By the final week, this pricing pressure had moved along the yield curve, affecting nine-day, ten-day, and eventually 91-day term instruments.
On 3 May, a 91-day loan carried an average interest rate of 11.87 per cent. By 24 May, both the average and peak rates for this three-month tenor converged at the 13 per cent ceiling. This rapid adjustment resulted in visible distortions across maturities. For example, on 24 May, ten-day loans traded flat at 13 per cent, while 14-day funds were cleared at a lower average rate of 10.12 per cent.
Treasury dealers note that such distortions typically happen when a borrowing bank faces an immediate liquidity deficit, forcing it to source funds from high-yield secondary desks after failing to secure capital from conventional primary counterparties.
Overnight Concentration and Market Contraction
Daily interbank transaction volumes fluctuated between Tk 4,000 crore and Tk 6,000 crore throughout the month, with up to 90 per cent of all trading activity focused on overnight borrowing. Peak overnight trading volumes were recorded at Tk 6,063 crore on 4 May and Tk 5,827 crore on 14 May, rarely falling below a baseline of Tk 3,200 crore.
While early May saw smooth capital transfers at an average rate of 9.99 per cent, trading volumes dropped notably by mid-month, falling to Tk 3,264 crore on 12 May and Tk 3,630 crore on 19 May, even as interest rates stayed sticky. Long-term term lending also saw a sharp decline. On 24 May, the entire 91-day term market registered just a single transaction of Tk 30 lakh at the maximum 13 per cent rate.
An anonymous market participant from a private commercial bank treasury desk described the situation:
“When transaction volumes fall sharply while rates stay sticky or continue rising, it usually means cash-surplus banks have shut their wallets. That forces weaker banks to scramble for liquidity at any available rate. A large segment of the banking sector is now effectively surviving hand-to-mouth, returning to the interbank market every morning to roll over thousands of crores simply to meet CRR and SLR obligations. Instead of managing balance sheets with stable, longer-term funding, many banks are plugging daily liquidity gaps with overnight borrowing.”
Liquidity Allocation and Sector Counterparties
The reduction in long-term interbank lending indicates lower confidence regarding counterparty credit risk among lenders. Cash-rich institutions are hesitant to extend credit beyond 14 days, a trend amplified by banks preparing for the seven-day Eid holiday closure and reserving capital for seasonal inward remittance distributions. Furthermore, capital-deficient banks often lack the sovereign treasury bills required to utilize the central bank’s repo facility, leaving them reliant on call money lines.
The primary institutional participants driving interbank activities are detailed below:
Net Capital Providers: BRAC Bank, City Bank, Eastern Bank, Mutual Trust Bank, Prime Bank, Pubali Bank, Dutch-Bangla Bank, Southeast Bank, Uttara Bank, and Bank Asia. These institutions hold excess deposits alongside historically low private-sector credit growth, which reached a record low of 4.7 per cent.
Net Capital Consumers: Islami Bank Bangladesh, United Commercial Bank (UCB), AB Bank, IFIC Bank, Premier Bank, and National Bank.