The interest rates on government treasury bonds surged to near 12.8 per cent in June due to the central bank鈥檚 contractionary monetary policy stance.
According to Bangladesh Bank data, the yield on treasury bonds now ranges from 12.25 per cent to 12.79 per cent, compared with that of 8.69 per cent to 11.16 per cent in December and 8.09 per cent to 9.09 per cent in June last year.
The weighted average interest rate for treasury bonds maturing within two years stands at 12.25 per cent, while those with a five-year tenure yield 12.43 per cent, as quoted at separate auctions in June.
Treasury bonds with a 10-year maturity period have a yield of 12.59 per cent, those maturing in 15 years yield 12.70 per cent, and bonds maturing in 20 years yield 12.79 per cent.
The weighted average yields on 91-day, 182-day and 364-day treasury bills increased to 11.64 per cent, 11.8 per cent and 12 per cent respectively in June 2024, compared with that of 6.8 per cent, 7.07 per cent and 7.9 per cent respectively in June 2023.
Bankers said that the interest rates on government treasury bills and bonds had not reached these levels in over a decade.
Data from the Bangladesh Bank鈥檚 archive, available until July 2009, does not show rates this high.
The government typically uses these tools to borrow from commercial banks by selling these securities.
Bankers attributed the surge in treasury bond interest rates to the central bank鈥檚 contractionary monetary policy, which made money more expensive by raising interest rates to curb inflation.
Inflation reached 9.7 per cent in June and remained above 9 per cent since March 2023.
The policy rate was increased by 50 basis points to 8.50 per cent effective from May 9 and banks鈥� lending rates were allowed to be determined by market forces, raising rates to nearly 15 per cent.
Many general and high-net-worth individuals rushed to purchase treasury bills and bonds to secure high profits with low risk, leading to a significant increase in demand for government securities in recent months amid the ongoing economic crisis and weak financial sector.
The government borrowed Tk 94,281 crore from the banking system in the 2023-24 financial year, although the revised target for borrowing was Tk 1,55,935 crore.
Bankers said that the government failed to meet its borrowing target due to a severe liquidity crisis in the banking system.
In the previous financial year, FY23, the government鈥檚 borrowing from the banking sector amounted to Tk 1.18 lakh crore.
The lending capacity of the country鈥檚 banks has diminished due to high non-performing loans, deposit withdrawals and rising cash outside banks amid high inflation.
The government has relied on borrowing from the banking sector due to increased expenditures, poor revenue collection and a decline in foreign direct investments.
To finance significant budget deficits, the government has turned to domestic sources, primarily relying on advances, overdrafts and the issuance of treasury bills and bonds.
Borrowing from non-banking domestic sources includes government T-bills and bonds owned by non-bank financial institutions, insurance firms, private investors and savings vehicles developed by the Directorate of National Savings.
