Bangladesh Bank Training Academy Journal

Abstract

The call money rate or short-term inter-bank borrowing and lending rate is generally the rate that a large number of banks use to borrow and lend from one another in the overnight market for a short period of time. This study has been attempted to forecast short-term inter-bank borrowing and lending rate of Bangladesh up to 2021. The month-wise data for the years 1997-2013 has been used to forecast the rates for each month-wise of the next eight years. This data has been obtained from Bangladesh Bank. Box-Jenkins ARIMA model have been deployed to forecast the rates. During the perod 1997 to 2013, data series shows that there were some differences in pattern of movement (trend) between borrowing rate and lending rate but after the end of 2006, the trend of rates are same. Results suggest that both the borrowing and lending rates indicate a cyclical pattern till 2013, it will be remained same till 2016 and after that fluctuation between the rates will be seen but at a slowly decreasing rte. In December 2014, short-term inter-bank borrowing rate will be at 7.78 and lending rate will be 7.82. In December 2021, short-term inter-bank borrowing rate will be lowest at 6.95 and lending rate will be 7.01.The study also recommends to provide appropriate environment through necessary incentives and facilities to the lenders and borrowers ensuring the removal of bottlenecks of money market.