The interest rate on treasury bills has fallen to 10 per cent, driven by increased bank investment in risk-free government securities and a reduction in the government鈥檚 borrowing target.
Bangladesh Bank data shows that T-bill yields now range from 10 per cent to 10.35 per cent, down from 11.97 per cent in December and 12 per cent in June 2024.
Banks typically prefer lending to the private sector for higher returns. However, weak private sector credit demand amid economic uncertainty has led banks to redirect funds into treasury bills and bonds, increasing demand and lowering yields.
Political uncertainty and business slowdowns have further contributed to sluggish credit growth, prompting banks to park excess liquidity in government securities.
In December 2024, private sector credit growth fell to 7.3 per cent 鈥� the lowest since October 2021.
On February 17, the government borrowed Tk聽7,132 crore through an auction of 91-day, 182-day, and 364-day treasury bills at interest rates of 10.35 per cent, 10.24 per cent, and 10.35 per cent, respectively.
In contrast, rates in the February 2 auction were 10.85 per cent, 10.96 per cent, and 10.99 per cent for the same maturities.
As of December 30, 2024, the yields stood at 11.50 per cent, 11.87 per cent, and 11.99 per cent, highlighting the sharp decline in rates.
Treasury bills are a short-term government borrowing tool while Treasury bonds are a long-term borrowing tool.
Government borrowing from the financial sector, including the central bank, primarily occurs through treasury bills and bonds.
Syed Mahbubur Rahman, managing director of Mutual Trust Banks, told 抖阴精品 that banks, finding no better investment options, are bidding aggressively on these instruments, prompting the central bank to lower the offer rate.
He noted that some banks, holding excess liquidity, have turned to low-risk investments.
By December 2024, banks鈥� excess liquid assets had risen to Tk聽2,15,002.2 crore from Tk聽1,95,824.5 crore in June.
Financial experts attribute this trend to sluggish lending activity, as businesses hesitate to take fresh loans amid political uncertainty.
Additionally, higher lending rates have discouraged borrowing, leaving banks with surplus liquidity.
The weighted average nominal lending rate increased from 11.52 per cent in June 2024 to 11.84 per cent in December 2024.
On February 10, the central bank announced its monetary policy, keeping the policy rate unchanged at 10 per cent while signaling a possible decline in the coming months.
Meanwhile, the government revised its bank borrowing target for the fiscal year downward to Tk聽99,000 crore from the initial Tk 1.37 lakh crore, further easing pressure on treasury yields.
During July-December FY25, the government鈥檚 net credit from the banking system reached Tk 14,642.54 crore which is 14.79 per cent of the revised target.
This included a net borrowing of Tk 69,056.1 crore from scheduled banks while repaying Tk 54,413.6 crore to Bangladesh Bank.
The impact has also been visible in long-term government bonds.
The weighted average yields on 2-year, 5-year, 10-year, 15-year, and 20-year Bangladesh Government Treasury Bonds (BGTBs) fell to 10.98 per cent, 10.47 per cent, 10.32 per cent, 11.92 per cent, and 11.95 per cent respectively in February, down from over 12 per cent to 12.25 per cent previously.
Another key factor behind the declining rates is the prospect of increased foreign loans, budget support from development partners, and funding from multilateral agencies such as the IMF and World Bank.
It would reduce the government鈥檚 reliance on domestic borrowing, further lowering treasury bill yields.
