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Govt sharply cuts interest rate on securities

Staff Correspondent

The government has sharply cut the interest rate on the short-term government securities over the last few months as scheduled banks with huge idle fund continue to submit a large number of bids in the auction of treasury bills and T-bonds with a view to invest their fund.
The banks are now holding huge amount of idle fund due to a lower investment trend in the private sector amid political unrest which compels the banks to invest in the T-bills and T-bonds with lower rate of interest, said officials of Bangladesh Bank.
According to the latest BB data, the cut of yield (interest rate) of all kinds of short-term T-bills declined in the last month while the rate of interest of 2-year and 5-year T-bond decreased.
The rate of interest on 91-day, 182-day and 364-day declined to 7.41 per cent, 8.22 per cent and 9.25 per cent respectively in December 2013 from 9.24 per cent, 10.62 per cent and11.12 per cent in December 2012.
The rate of interest on 5-year T-bond declined to 11.30 per cent in December 2013 from 11.52 per cent in the same month a year ago.
The rate of interest on 2-year T-bond also declined to 10.03 per cent in December from 10.94 per cent in May 2013. The BB reintroduced the 2-year T-bond in May 2013.
The BB data showed that the rate of interest of the central bank’s owned securities of 30-day BB bill went down to 7.09 per cent in December 2013 from 8.94 per cent in the corresponding month of 2012.
Due to the lower rate of interest on the government securities, the banks failed to recover their cost of fund as they usually collect fixed and term deposit with higher interest rate at between 10 per cent and 12.5 per cent, the BB official said.
‘The government does not set the rate of interest on the T-bills and T-bonds. The interest rate of the government and the central bank securities will be set by the market demand,’ he said.
Due to the political unrest, the businesspeople have adopted a ‘wait and see’ approach to expand their business by taking bank loans which pushed up idle fund in the banking sector, he said.
Surplus liquidity in the banking sector increased to Tk 90,073.73 crore as of November 28, 2013 from Tk 79,663.77 crore as of October 17, 2013, the BB data showed.
According to the BB data, the banks submitted bids worth Tk 1,040.75 crore on January 6, 2014 against the government scheduled bids worth Tk 462.65 crore for 91-day T-bills.
The banks in December 30 2013 submitted bids worth Tk 1,418.93 crore against the government scheduled bids worth Tk 750 crore for 364-day T-bills.
The central bank figure of the bid submission indicated that the primary dealers and the non-PD banks increased their participation in the auction of government securities, another BB official said.
The increased trend in submitting bids in the T-bills and T-bonds will continue in the months to come if the existing political unrest continues, he said.
The BB data, however, showed that the rate of interest on long-term T-bonds between 10 years and 20 years had increased as the banks are reluctant to invest in the bond as the maturity period of the securities is long.




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