Short-term treasury bills’ interest rates to go up
Sunday, 15 July 2007
Siddique Islam
The Bangladesh Bank (BB) is expected to gradually raise interest rates on short-term treasury bills to pursue a contractionary monetary policy.
The central bank will take the step to withdraw excess liquidity from the banking system aiming to curb inflationary pressure on the economy, official sources said.
"We want to reduce gap between the interest rates on short-term securities and long-term government bonds by revising the rates," a BB senior official told the FE Saturday.
He also said the central bank has planned to increase the interest rates on short-term monetary tools to attract banks and non-banking financial institutions (NBFIs) for investment in such instruments.
"Our latest move will also help activate the country's secondary, the new investment window for banks and NBFIs," the BB official observed.
"In order to dampen inflationary expectation, it may be prudent to reduce the gap. This may be done by changing to short-term interest rates and developing secondary market of the government securities leading to lowering of yield on long term bonds," the central bank said in its fourth monetary policy, released Thursday last.
However, in adjusting short-term rates one has to be careful in view of the fact that due to the present situation of excess liquidity with the banks, the BB may be able to withdraw surplus funds through reverse repo offering relatively higher rate of interest, the monetary policy stated.
Treasury officials, however, are expecting higher interest rates on short-term securities to minimise their cost of funds. But they do not want to cut the interest on long-term securities like the four government approved bonds.
"We did not show interest to invest in the short-term securities due mainly to lower interest rates that do not match our cost of funds," a senior treasury official of a private commercial bank told the FE.
He also said the interest rates on such short-term securities are hovering between 7.32 per cent and 8.48 per cent, but the cost of funds on an average is over 11 per cent.
Currently, four treasury bills (T-bills) are being transacted through auctions as monetary tools to adjust the government borrowing from the banking system.
The T-bills have 28-day, 91-day, 182-day and 364-day maturity periods.
"Some of the banks prefer inter-bank term placement, similar to FDR in the case of individual clients, to investment in short-term securities," he said, adding that the banks can easily invest their excess liquidity through such placement to another bank at 9.0 per cent rate of interest.
The central bank has been continuing to pursue cautious, restrained monetary policies since the second half of 2005 with a view to "curbing excess demand from inflationary expectations".
The Bangladesh Bank (BB) is expected to gradually raise interest rates on short-term treasury bills to pursue a contractionary monetary policy.
The central bank will take the step to withdraw excess liquidity from the banking system aiming to curb inflationary pressure on the economy, official sources said.
"We want to reduce gap between the interest rates on short-term securities and long-term government bonds by revising the rates," a BB senior official told the FE Saturday.
He also said the central bank has planned to increase the interest rates on short-term monetary tools to attract banks and non-banking financial institutions (NBFIs) for investment in such instruments.
"Our latest move will also help activate the country's secondary, the new investment window for banks and NBFIs," the BB official observed.
"In order to dampen inflationary expectation, it may be prudent to reduce the gap. This may be done by changing to short-term interest rates and developing secondary market of the government securities leading to lowering of yield on long term bonds," the central bank said in its fourth monetary policy, released Thursday last.
However, in adjusting short-term rates one has to be careful in view of the fact that due to the present situation of excess liquidity with the banks, the BB may be able to withdraw surplus funds through reverse repo offering relatively higher rate of interest, the monetary policy stated.
Treasury officials, however, are expecting higher interest rates on short-term securities to minimise their cost of funds. But they do not want to cut the interest on long-term securities like the four government approved bonds.
"We did not show interest to invest in the short-term securities due mainly to lower interest rates that do not match our cost of funds," a senior treasury official of a private commercial bank told the FE.
He also said the interest rates on such short-term securities are hovering between 7.32 per cent and 8.48 per cent, but the cost of funds on an average is over 11 per cent.
Currently, four treasury bills (T-bills) are being transacted through auctions as monetary tools to adjust the government borrowing from the banking system.
The T-bills have 28-day, 91-day, 182-day and 364-day maturity periods.
"Some of the banks prefer inter-bank term placement, similar to FDR in the case of individual clients, to investment in short-term securities," he said, adding that the banks can easily invest their excess liquidity through such placement to another bank at 9.0 per cent rate of interest.
The central bank has been continuing to pursue cautious, restrained monetary policies since the second half of 2005 with a view to "curbing excess demand from inflationary expectations".