Liquidity squeeze halves BoB�s interest expenses

Due to a prolonged period of rapid credit growth, which was ushered in by the central bank’s cap on BoBCs, commercial banks last year found themselves short of loanable funds with their total investments in the mopping instruments often falling below the “tolerable” cap.

As part of its open market operations, the BoB regularly auctions BoBCs to mop up excess liquidity on the money market, thus managing interest rates and other trends. For banks, the BoBCs represented regular, risk-free assets in which to invest deposits held and earn tidy returns.