The government's gross borrowing from the banking system jumped suddenly Sunday to finance budget deficit partly for the current fiscal year (FY), officials said.
Bangladesh government borrowed Tk 13 billion on the day against previously fixed target worth Tk 2.0 billion through holding of its 91-Day Treasury Bills (T-bills).
On the other hand, the interest rate on the T-bills dropped at the lowest ebb on the day, as commercial banks rushed to offer bids in the auctions, according to bankers.
The cut off yield, generally known as interest rate, on 91-day T-bills came down to 1.0 per cent on the day from 1.09 per cent of the previous auction, held on May 06.
Earlier on April 17, 2009, the cut off yield was 1.11 per cent, the market operators said.
Bidders offered Tk 14.42 billion against pre-targeted amount of Tk 2.0 billion for the 91-day T-bills of the auctions, according to the result. Of those Tk 13 billion was accepted for the government approved security, it added.
"The interest on T-bills has been fixed in line with the market demand," a senior official of the Bangladesh Bank (BB) told the FE after announcing result of the auction.
He also said the yield will come down below 0.45 per cent on the 91-day T-bills if the government keeps borrowing within the target, announced by the BB in its auction calendar.
"Higher borrowing, by the government, helped the yield on 91-day T-bills hover at 1.0 per cent level," the central banker explained. However, the weighted average yield (WAY) on 07-Day BB Bills fell to 0.21 per cent on Sunday from 0.24 per cent of the previous working day.
Senior bankers, however, said both interest rates on lending and deposit may fall in the coming days if the lower yield on both the T-bills and the BB bills continue.
"Some banks including public ones are now holding excess liquidity as the central bank revised the cash reserve requirement (CRR) rules," a senior treasury official of a leading private commercial bank (PCB) told the FE.
The banks had enabled to use Tk 101 billion additional fund since April 15 after implementation of revised CRR rules, the private banker explained.
Under the revised rules, the banks are now maintaining 5.50 per cent instead of 6.50 per cent CRR with the central bank from their total demand and time liabilities on a bi-weekly basis.
On the other hand, the government borrowed higher amount of money on the day through holding the auction of 91-day T-bills following balance of its account turned into negative at over Tk 30 billion.
"The government will have to borrow more from the banking system if the negative figure in its account continues," the central banker explained.
However, the government's net bank borrowing is still at a negative level, amounting to Tk 216.69 billion as on April 26, mainly due to higher growth in the savings certificate sales, according to the central bank's confidential report.
The government had set a bank-borrowing target of Tk 282.03 billion for the FY 2017-18 to partly finance the budget deficit.
Under the proposed bank borrowing, the government will borrow Tk 208.87 billion through issuing long-term bonds while the remaining Tk 73.16 billion through T-bills.
Currently, four T-bills are being transacted through auctions to adjust the government's borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
The T-bills are short-term investment tools issued through auctions, conducted by the central bank on behalf of the government.
Furthermore, five government bonds, with tenures of two, five, 10, 15 and 20 years respectively, are traded on the market.