What is the money market?
The money market is the market for short-term borrowing, usually for one year or less. The main players are banks, finance companies, the government and the central bank. One bank has spare cash today, another is short; in the money market that cash changes hands for a night or a few days.
What gets traded here can be turned into cash very quickly and carries relatively low risk: overnight loans, government treasury bills, or loans secured against government securities. That is why the money market is called the economy’s “cash pipeline”. Long-term money, such as shares or long-dated bonds, is traded in the capital market.
Say people are crowding into banks before Eid to withdraw salaries and bonuses. One bank needs a lot of cash today for its ATMs and counters, but most of its money is out on loans. Another bank has spare cash sitting idle today. The first bank borrows from the second for one night and pays it back with interest the next day. This is the money market’s most familiar form: call money. This is only an illustrative example.
Why it matters to an investor
- To see where interest rates are heading early: call money and treasury bill rates usually move before deposit and loan rates. When they keep rising, FDR rates usually follow some time later.
- To gauge cash conditions in banking: a sudden jump in call money rates signals that banks are short of cash.
- To understand treasury bills: ordinary people can buy treasury bills under certain rules, and their yields are set in this market.
- To see how monetary policy travels: the central bank first moves money-market rates, and the effect spreads from there to the whole economy.
The main parts of Bangladesh’s money market
- Call money: one bank lends to another for one day without collateral. There are also “short notice” loans of 2 to 14 days and “term” loans of 90 to 180 days. Together these make up the interbank market.
- Repo: an agreement to sell government securities and buy them back on a set date, which is really a short-term loan with collateral. Banks do repos with each other and with Bangladesh Bank.
- Treasury bills: the government’s short-term borrowing. Bangladesh Bank auctions 14-, 91-, 182- and 364-day bills on the government’s behalf; banks are the main buyers.
- Bangladesh Bank bills and standing facilities: when there is too much cash in the market, Bangladesh Bank can soak it up; when there is too little, it lends against collateral.
Where the rates sit
Since 2023, Bangladesh Bank has moved towards an interest-rate-based monetary policy built around an “interest rate corridor”. The policy rate sits in the middle; the ceiling is the standing lending facility, the rate at which banks can borrow from Bangladesh Bank; the floor is the standing deposit facility, the rate at which they can park spare cash with it. The aim is for the call money rate to stay between the two.
These rates change a lot over time. For example, treasury bill auction yields were around 1% or less in April 2021, and just above 12% in June 2025. In July 2025, call money transactions came to about Tk 1.16 lakh crore in a single month. Bangladesh Bank publishes the latest rates regularly.
Worked example
- Say one bank lends another Tk 100 crore for one night at 10% a year.
- Interest for one day = Tk 100 crore × 10% ÷ 365 ≈ Tk 27.4 lakh.
- The next day, the borrowing bank repays about Tk 100 crore 27.4 lakh.
Result: one day’s interest sounds small, but because the sums are large, it pays a bank not to leave spare cash idle even for one night. The numbers are only an example.
Common mistakes
- Thinking the money market is part of the stock market. It deals in short-term borrowing, not shares.
- Assuming “short-term” means “risk-free”. Unsecured lending such as call money still carries the borrower’s risk.
- Expecting deposit rates to change tomorrow because of one day’s call money rate. The effect takes time to pass through.
- Treating the treasury bill yield at one moment as permanent; it has swung widely in just the last few years.
The money market is the market for borrowing under one year; its rates show which way your FDR and loan rates are heading.