The government has increased the interest rate on treasury bills and bonds as banks were reluctant to invest excess liquidity in the securities ahead of Eid-ul-Fitr vacation.
Bangladesh Bank data showed that T-bill yields now range from 10.9 per cent to 11.3 per cent in the last auction in March, increasing from 10 per cent in February.
Banks have become cautious about investing their surplus funds in government securities, instead, maintained liquidity for the festival period, which pushed yields higher.
Eid-ul-Fitr, one of the biggest religious festivals of the Muslims, was celebrated across Bangladesh on March 31.聽
On March 24, the government borrowed Tk 6,652 crore through an auction of 91-day, 182-day and 364-day treasury bills at interest rates of 10.90 per cent, 11.25 per cent and 11.3 per cent respectively.
In contrast, rates in the March 2 auction were 10.34 per cent, 10.55 per cent and 10.73 per cent for the same maturities
As of February 17, 2025, yields stood at 10.35 per cent, 10.24 per cent and 10.35 per cent for the same maturities.
Banks鈥� liquidity has actually increased substantially, with excess funds growing from Tk 1.95 lakh crore in June 2024 to Tk 2.34 lakh crore in January 2025. However, the liquidity is not flowing into government debt instruments as usual.
The central bank is set to phase out the 28-day tenure repo facility after the Eid vacation, which may create pressure on liquidity.聽
Therefore, the withdrawal of 28-day repo facility from April 3 has discouraged banks from parting with their cash reserves.
Government borrowing from the banking system is anticipated to increase during the last two months - May and June - of the financial year 2024-25.
The government revised its bank borrowing target for FY25 downward to Tk 99,000 crore from the initial Tk 1.37 lakh crore.
During July-February period of FY25, the government鈥檚 net credit from the banking system reached Tk 26,225 crore, which is only 26.5 per cent of the revised target.
This included a net borrowing of Tk 86,000 crore from scheduled banks while repaying Tk 59,780 crore to the Bangladesh Bank.
Treasury bills are a short-term government borrowing tool while treasury bonds are a long-term borrowing tool.
The rate was near 12 per cent in December 2024.
As of December 30, 2024, the yields stood at 11.50 per cent, 11.87 per cent and 11.99 per cent.
Government borrowing from the financial sector, including the central bank, primarily occurs through treasury bills and bonds.
The weighted average yields on 2-year, 5-year, 10-year, 15-year and 20-year Bangladesh Government Treasury Bonds or BGTBs increased to 11.20 per cent, 11.5 per cent, 12.05 per cent, 12.28 per cent and 12.50 per cent respectively in March, up from 10.98 per cent, 10.47 per cent, 10.32 per cent, 11.92 per cent and 11.95 per cent respectively in February.