Economists, bankers, and central bank officials have identified two key factors behind the recent surge in Treasury bill (T-bill) rates in Bangladesh. The primary reason is the government’s increased borrowing from the market, which has risen significantly since the start of the December quarter due to a short-term funding gap.

Key Points:

Yields on all categories of T-bills in Bangladesh have risen above 10%, amid tighter liquidity conditions.
The 91-day, 182-day, and 364-day T-bills saw an increase of up to 55 basis points.
The government has raised its borrowing target by Tk22,000 crore this quarter.
Liquidity has tightened as the Bangladesh Bank halted its dollar purchases.
A slowdown in deposit growth has exacerbated the cash shortage in the banking sector.
With private sector credit growth sluggish, banks are turning to safe government securities.

At the latest auction, yields on the 91-day T-bill climbed to 10.08%, the 182-day to 10.30%, and the 364-day to 10.04%, marking an increase of between 5 and 55 basis points compared to the previous auction. Just two weeks ago, yields were lower, standing at 9.52%, 9.97%, and 9.99%, respectively.

Economists point to two main factors contributing to the rise in yields. Firstly, the government has significantly increased its borrowing through T-bills, as it faces a funding shortfall. Officials have indicated that the government plans to borrow an additional Tk22,000 crore this quarter through T-bills and bonds, thus increasing demand and pushing yields higher.

Secondly, there has been a noticeable tightening of liquidity in the market. The Bangladesh Bank, which had been injecting liquidity for several months, recently halted its US dollar purchases, further restricting liquidity. Alongside this, sluggish growth in deposits has worsened cash shortages in the banking sector.

Zahid Hussain, the former lead economist at the World Bank’s Dhaka office, explained, “The rising T-bill yields can be attributed to two main factors: the increase in government borrowing and reduced liquidity 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), also highlighted that banks are increasingly turning to government securities due to the low growth in private sector credit. “With private credit growth slow, banks find it more attractive to invest in government securities, which offer guaranteed returns,” he said.