(Bloomberg) -- Bangladesh stocks jumped the most in 17 months after lenders were allowed to borrow from the central bank to invest in equities.
Bangladesh Bank allowed commercial banks to borrow at 6% through repurchase agreements, it said in a statement. The DSE Broad Index rose 1.5% at 1:24 p.m. in Dhaka after surging the most since April 1, 2018.
Authorities in the South Asian nation are trying to revive the equity market, which has dropped 18% from its peak in January. The central bank earlier this month took steps to encourage lenders to extend more credit. The rate offered to banks is half of what Brac Bank Ltd., the nation's biggest by market value, charges the nation's biggest companies, according to central bank data.
“Our stocks are undervalued,” said Debashish Sutradhar, an analyst at United Securities Ltd. “These steps by Bangladesh Bank will help prop up the market. I won't be surprised if the market gains 10%.”
The Bangladesh central bank said the repo agreements will be initially valid for 28 days and can be extended for six months. Banks must invest the funds only in their own portfolios and will be allowed to give the money to their subsidiaries to boost investments in stocks.
Read: Delinquencies Jump After Bangladesh Central-Bank Move Backfires
The central bank earlier this month increased the advance-to-deposit ratio to 85% for banks from 83.5% in a bid to spur loan growth.
“Banks are suffering from a short-term liquidity crunch,” said Towfiqul Islam Khan, senior research fellow at Dhaka-based Centre for Policy Dialogue. “The decision by the central bank is meant to boost the fund flow and move away from the short-term crunch, but there's a concern over the utilization of the funds.”
Brac rose 3.2%, Premier Bank Ltd. added 8.5%, while Islami Bank Bangladesh Ltd. advanced 4.2%.
To contact the reporter on this story: Arun Devnath in Dhaka at adevnath@bloomberg.net
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Ravil Shirodkar
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