The yields on 91-Day Treasury Bills (T-bills) fell below 1.0 per cent on Sunday after more than one decade as banks preferred to invest their excess funds in the government securities.
The cut off yields, generally known as interest rate, on 91-day T-bills came down to 0.94 per cent on the day from 1.39 per cent of the previous auction, held on October 11.
"The yield on 91-Day T-bills returned into below 1.0 per cent after over 10 years," a treasury head of a leading private commercial bank (PCB) told the FE. He also said the yield on 91-Day T-bills was below 1.0 per cent in 2009.
On the other hand, the cut off yields on 364-day T-bills also dropped to 2.49 per cent on the day from 3.99 per cent of the previous auction, according to the auction results.
Talking to the FE, a senior official of the Bangladesh Bank (BB) said the yield on T-bills have been fixed in line with the market requirements.
"Most of the banks are now willing to invest their excess liquidity in the risk-free securities through quoting lower yields," the central banker said.
The overall excess liquidity with the commercial banks hit all time high at around Tk 1.60 trillion in August 2020 from Tk 1.41 trillion a month before.
Lower private sector credit growth along with injecting fresh funds in the market by the central bank through buying the US dollar from the banks continuously have helped push up the excess liquidity in the banking system, according to the bankers.
They also said that expansionary monetary policy of the central bank along with implementation of the government-announced stimulus packages aiming to speed up recovery of the pandemic-hit economy have also helped increase the inflow of liquidity in the banking system.
The central bank injected Tk 222.77 billion in the market through buying $2.63 billion from the banks in the July-September period of the current fiscal year (FY2020-2021).
Besides, the demand for such securities has sharply been increased mainly due to lower interest rates on call money in the inter-bank market, they added.
The inter-bank call money rate dropped significantly in the recent days as the central bank injected funds continuously through buying the US dollar from the banks to keep the country's foreign exchange market stable.
The weighted average rate (WAR) on call money stood at 2.72 per cent on Thursday from 4.27 per cent on September 01, the BB data showed.
The call money rate remained unchanged at 1.50-5.25 per centon the day from the previous level. But most of the deals were settled at rates varying between 1.50 per cent and 2.00 per cent, market operators said.
On the other hand, the minimum interest rate on inter-bank repo stood at 0.20 per cent on Thursday while the lower level of call money rate remained unchanged at 1.50 per cent.
However, the weighted average rate (WAR) on inter-bank repo came down to 0.3200 per cent on Thursday from 0.3300 per cent a day ago, according to the central bank's latest statistics.
"We prefer to invest our excess liquidity in the government-approved securities than the call money market. As a result, the demand for such securities goes up gradually," another private banker told the FE while replying to a query.
Currently, three T-bills are being transacted through auctions to adjust government borrowings from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with tenures of 02, 05, 10, 15 and 20 years respectively are traded on the money market.
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