The interest rate of treasury bills in Bangladesh has crossed as high as 10 percent recently indicating that the lending rates will rise further in the days ahead, according to bankers. This was 7.29 percent to 8.10 per cent in January this year.
Separate auctions for treasury bills that mature in 91 days, 182 days and 364 days were held on Sunday. The government collected about Tk 3,304 crore from 91-day treasury bills while the 182-day and Tk 364-day securities paid out around Tk 304 crore and Tk 582 crore respectively.
The interest rate, or yield, on 91-day treasury bills was 10.20 percent while it was 10.40 percent and 10.60 percent respectively for 182-day and 364-day securities.
The last auctions were held on November 12, when the interest on 91-day treasury bills was 10 percent, 182-day was 10.20 percent and 364-day was 10.30 percent per annum.
The interest rate on all kinds of treasury bills ranged from 7.29 percent to 8.10 percent earlier this year. The government generally borrows from the financial sector, including the central bank, by issuing treasury bills and bonds.
The government took around Tk 98,000 crore in loans from Bangladesh Bank (BB) in fiscal 2022-23, which was nearly 73 percent of its total borrowing from banks and non-banks at the time. Financial experts and economists criticised the borrowing for stoking inflationary pressure.
So, the government planned to borrow from commercial banks instead of the central bank. Bankers said the higher interest of treasury bills will impact the lending rate of banks because the central bank introduced a new lending rate system linked with the debt instrument.
Bangladesh Bank withdrew the lending rate cap in June and introduced a new market based interest rate regime to meet conditions attached to the International Monetary Fund's $4.5 billion loan.
As per the central bank's new formula, banks can impose a margin of 3.5 percentage points on the six-month moving average rate of treasury bills, abbreviated as SMART.
As such, the SMART continues to rise due to the higher interest of treasury bills. The SMART was 7.14 in August while it rose to 7.20 in September and 7.43 in October, shows Bangladesh Bank data.
Emranul Huq, managing director of Dhaka Bank, said if the interest of treasury bills' stays at more than 10 percent, then the lending rate will increase to 14-15 percent.
He also said the interest on deposits will increase due to the hike in lending rates. However, Huq hopes the growing lending rate will help curb the ongoing inflationary pressure.
Inflation in Bangladesh rose to 9.93 percent in October on the back of higher food and non-food prices. The Consumer Price Index was up 9.63 percent in September, as per the Bangladesh Bureau of Statistics (BBS).