Government treasuries traded Sunday on higher bets as policy-rate hike as a measure to tame inflation is pushing up yields on these instruments.
Economists think banks may now make a beeline for investing in T-bills and bonds, and the already-raised lending rates may also rise in a chain effect.
The policy or repo rate was raised to 7.25 per cent from 6.5 per cent last week. The rate took immediate effect-to make funds costlier to rein in price rises.
The yield on the 91-day treasury bill was up by 1.8-percentage points to 9.25 per cent on Sunday, according to Bangladesh Bank data.
The 182-day treasury bill offered 9.5 per cent, up by 1.9 percentage points from previous auctions.
The 364-day treasury yield surged to 9.75 per cent, up by 1.5- percentage points from the previous auction held on October 01.
People at the central bank who are familiar with the latest developments on the money market told the FE that this hike in the yield is due to the policy rate.
"We've raised the policy rate and this is simply because of its hike," says Md Mezbaul Haque, Bangladesh Bank spokesperson and executive director.
The central bank accepted bids worth Tk 20 billion through a 91-day T bill, Tk 13 billion through a 182-day bill and Tk 8.0 billion with a 364-day bill on the day.
Bangladesh Bank officials say common people can purchase the bonds through primary-dealer banks as their yields are higher than that on many savings instruments in commercial banks.
They also said the tax at source on the profits is 5.0 per cent which is 10 per cent for any other savings schemes in the commercial banks.
"Individuals need to open account for purchasing the treasury bills and bonds," says one BB official.
Economists, however, believe this is an abnormal rise in the yields on the treasuries.
Dr Zahid Hussain, former lead economist at the World Bank Dhaka office, told the FE that this is too high and incompatible with the latest-set lending rates. The interest on bank loans ranges up to 10.7 per cent.
He notes that the yield rate is now driven by market forces. "Now banks will jump to invest in the government bills and bonds as they are risk-free."
The economist foretells that banks will also raise interest on deposits to lure the depositors.
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