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Special treasury bills auction resumes on high bets for replenishing government funds as a substitute for print money circulation by the central bank that fuels inflation and price spiral.
The Bangladesh Bank Thursday restarted auctioning the 14-day special treasury bills, after a pause since January 2020, to avoid 'devolvement'-a byword for 'high-powered money' printed by the BB to lend to government to lower bank borrowings.
Sources at the BB said the auction of the treasuries resumed nearly after four years to help meet government budget-financing shortfalls.
In doing so the central bank had to go beyond the existing auction calendar which didn't have it in the government securities listings, in order to meet an exigency.
According to the BB sources, the government planned to borrow Tk 21.0 billion from the special auction on the day but it ended taking Tk 15.0 billion because of higher rate as the cut-off yield was 8.50 per cent.
Seeking anonymity, a BB official says the government needs money to meet its budget shortfalls with funds from the banking system but cannot borrow as much as required as the participating banks in the auction placed higher rates, which is not sustainable.
"That's why the government took funds lesser than its target in the recent auctions. But the government, having revenue shortfalls, needs credits to meet its expenses from the banks," the central banker told the FE writer.
The other option is supplying high-powered money by the BB itself through devolvement instrument. But the current stance of the regulator is not to go for 'devolvement' in this high inflation regime as injection of new circulated money normally stokes inflation, the official explains the quandary.
"Taking all the factors into consideration, the central bank has reintroduced the special auction of 14-day treasury bills, which last traded on January 05, 2020," the official says.
Another BB official says the move is a timely one as banks will feel much comfort to invest in the short-term government securities to get handsome returns in the shortest possible time under the current macroeconomic situation.
According to BB statistics, the government had funds worth over 100 billion in its accounts with the central bank even few weeks ago but it came down to less than Tk 7.0 billion in very recent days.
Former lead economist at World Bank's Dhaka office Dr Zahid Hussain says short-term instruments tend to be used to influence market rates. The 8.5-percent rate, however, is remarkably high compared to the 10.7-percent lending rate banks are now allowed to charge.
"Since T-bills are risk-free and short-term bills are more tradable, banks with excess liquidity are likely to be interested to park their money in these bills," he says about the bets placed on state securities.
The eminent economist feels that the government is probably trying to avoid getting locked into high-interest longer-term commitments in this tight financing environment. They want to keep their options open to revisit the interest rate when these bills mature.
Chairman of Policy Exchange of Bangladesh Dr M Masrur Reaz hails the central bank for coming out of the trend of injecting high-powered money into the economy as print money is a major factor to stoke inflation.
About crowding-out effect, he says the demand for formal credits by the private sector continues squeezing. The private entrepreneurs will not show courage to invest at a time when the next parliamentary poll is few months away.
"So, I don't think it will cause crowding-out effect in the next few months. But the government should target reducing the overall expenses," he says.
Research director of the Centre for Policy Dialogue (CPD) Dr Khondaker Golam Moazzem suggests that the government pay more attention to long-term solutions reducing its spending in public financing-management context.
"The government must concentrate on projects which are logical. But there are some projects which are unnecessary at the moment as it will create more burdens of liability on the government," he told the FE writer.
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