Lower deposit rates increase fund flow to stock market:Daily Sun

  A recent initiative of the scheduled banks to reduce interest rates on deposits have diverted more funds to the capital market, which resulted in a rise in trade both in terms of turnover and number of shares traded, market insiders say. However, no data was available immediately on the amount of fund diverted from banks to the capital market. “This is partially true. But, the shift of deposits
from banks alone is not influencing the trade. There is also a rise in foreign investment,” said Dr Abdul Majiz, chairman of Chittagong Stock Exchange (CSE), Tuesday. Interest rates on deposits offered by private and state-owned scheduled banks have been lowered from double-digit to low-single digit recently on the backdrop of low demand for credit for fresh investment. Businessmen were blaming the banks for charging higher interest rate and looked for foreign loans. To address this situation, the Bangladesh Bank (BB) had asked banks to lower interest rates on deposits. Political instability and infrastructure deficit along with higher interest rates together have been resulting in a lower demand for credit from local banks to initiate fresh investments in the country for the last couple of years. However, the Dhaka Stock Exchange (DSE) statistics show that inflow of a significant amount of foreign investment in the capital market in September also pushed up the trade after a depressing trend for last couple of years since a massive fall in index in 2010 and 2011. Net foreign investment at the DSE rose to Tk 426.25 crore in September from Tk 12.45 crore in August this year, according to DSE data. Bourse data also show that market capitalisation increased by Tk 10,000 crore in September alone, which indicates a significant rise both in local and foreign investments. Experts say the market has been passing through trade acceleration and corrections from time to time. “It is the nature of the capital market. It must pass through ups and downs. But whatever, the market is stable now,” said Khandker Ibrahim Khaled, former BB deputy governor. Khaled, who carried out investment into the 2010-2011 capital market fall, said he is optimistic that the market would remain vibrant in the days to come unless anything wrong happens. He also advised the small investors to monitor movements of share prices and the financial history of the host company before investment.