Why T-bill interest rate crosses 10% again?
According to economists, bankers, and central bank officials, two major factors have contributed to the latest rise in T-bill rates. First, the government has increased borrowing from the December quarter, as it faces a short-term funding gap
Highlights:
- All Bangladesh T-bill yields rose above 10% amid tight liquidity
- 91-, 182-, and 364-day yields jumped up to 55 basis points
- Government increased borrowing by Tk22,000 crore this quarter
- Liquidity tightened as Bangladesh Bank halted dollar purchases
- Sluggish deposit growth worsened the banking sector's cash shortage
- Banks favor safe government securities over slow private credit growth
Yields on all categories of Treasury bills (T-bills) in Bangladesh have once again surpassed 10%, driven by increased government borrowing and a tightening liquidity situation in the banking sector.
At yesterday's auction, the yield on the 91-day T-bill rose to 10.08%, the 182-day to 10.30%, and the 364-day to 10.04% – an increase of between 5 and 55 basis points from the previous auction. Two weeks earlier, yields stood at 9.52%, 9.97%, and 9.99%, respectively.
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According to economists, bankers, and central bank officials, two major factors have contributed to the latest rise in T-bill rates. First, the government has increased borrowing from the December quarter, as it faces a short-term funding gap.
Officials said the government plans to increase net borrowing through T-bills and bonds by around Tk22,000 crore this quarter, raising demand relative to supply and thus pushing yields higher.
Second, the market is currently experiencing liquidity tightness. The Bangladesh Bank has recently refrained from purchasing US dollars through auctions after injecting liquidity into the system for several months. At the same time, deposit growth in the banking sector has remained sluggish, further tightening money market conditions.
Zahid Hussain, former lead economist of the World Bank's Dhaka office, said, "Two key factors could explain the rising T-bill yields – increased government borrowing from this segment and reduced liquidity flow in the market. Although revenue collection was strong in the first quarter of the fiscal year, it now appears to be slowing."
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank (MTB), echoed the view, noting that banks are also investing more heavily in government securities.
"The government's borrowing from banks through T-bills and bonds has risen, while private sector credit growth remains low," he said. "Since investment in government securities offers guaranteed returns, banks find it more attractive."
