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Government bills and bonds are currently offering a more lucrative interest rate compared to bank deposits, according to Bangladesh Bank source.
It has been disclosed recently that the interest rate on Treasury bills surpassed 12 percent, outperforming the interest rates offered by banks.
The escalating interest rates on Treasury bills have implications for bank loan interest rates as well. Presently, the six-month moving average rate, also known as SMART (Six Months Moving Average Rate of Treasury Bills), stands at 8.68 percent. With an additional 3.75 percent to be added to this figure, the bank loan interest rate is expected to rise to 12.43 percent.
Recently, the government has ceased lending through savings bonds and opted for alternative borrowing methods. It has turned to banks for financing, primarily through the issuance of Treasury bills and bonds that aims to curtail inflation by avoiding excessive money printing.
A source within the Bangladesh Bank has disclosed that the interest rate on Treasury bills has surpassed 12 percent, indicating a surge in demand for government securities. During the latest auction conducted by the central bank on Tuesday (February 20), the interest rates on various term bills peaked at 12.05 percent, resulting in the government borrowing a substantial amount of 1503 crore takas.
Moreover, the determination of bank loan interest rates now depends on the prevailing Treasury bill rates. This linkage between government borrowing rates and bank lending rates has significant implications for the overall monetary policy framework. The method employed for this determination, known as SMART provides valuable insights into interest rate trends. As of February, the SMART rate stands at 8.68 percent, reflecting a notable increase from 7.72 percent in December and 7.43 percent in November.
Additionally, banks and financial institutions have been authorised to levy additional interest rates ranging from 3.75 to 5.75 percent, depending on various factors.
Despite initially setting a borrowing target of Tk 3,500 crore for a 91-day period, the government ended up raising Tk 4,218 crore, reflecting heightened demand for government treasury bonds. Similarly, plans to withdraw Tk 1.5 billion through an 182-day term bill resulted in the government raising Tk 501 crore. Additionally, a withdrawal of Tk 422 crore was planned through a 364-day term bill.
Sources indicate that the surge in interest rates can be attributed to the increased demand for government Treasury bonds. This trend underscores investors' confidence in the safety and reliability of government securities, particularly amid economic uncertainties.
In its efforts to combat inflation, Bangladesh Bank aims to reduce inflation to 8 percent by the end of December. To this end, the central bank recently announced a policy interest rate hike of 0.75 percentage points, bringing the new repo rate to 7.25 percent. This decision, effective since October 5, has contributed to a general uptick in interest rates across various sectors.
A senior official at Bangladesh Bank highlighted the challenges posed by the current inflationary environment, emphasising the importance of prudent financial management and investment strategies. With a significant portion of individuals' incomes being allocated towards meeting rising living costs, saving and investing wisely have become imperative.
However, the search for secure and lucrative investment avenues has become increasingly challenging. Many individuals are dissatisfied with returns from traditional investment options such as cooperative societies and MLM organisations like Destiny. Additionally, the stagnation in the stock market, attributed partly to regulatory constraints imposed by the Bangladesh Securities and Exchange Commission (BSEC), has further limited investment opportunities.
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