Interest rates on Treasury bills and bonds are climbing once again, edging closer to the 12% mark, driven by the government’s increasing dependence on bank borrowing and a sluggish growth in bank deposits.
The supply of funds from commercial banks is struggling to keep pace with rising state demand, Bangladesh Bank data shows.
Over the past month, yields on Treasury bills have surged between 101 and 123 basis points.
Financial insiders say the hike stems from mounting government borrowing at the tail end of the fiscal year and a persistent revenue shortfall.
The tightening in liquidity is also expected to push up interest rates on bank loans, further discouraging private sector investment—a sector already mired in stagnation with historically low credit growth.
Dr Zahid Hussain, former lead economist at the World Bank Dhaka Office, said, “Given the government’s pace of borrowing from the banking system, higher interest rates are inevitable.”
He noted that the most recent yield on the 182-day Treasury bill stood at 11.85%, almost on par with the 12–13% banks earn by lending to private clients—albeit with much higher risk. He attributed the government’s heavy reliance on banks to weak revenue collection and underwhelming foreign aid inflows.
The only silver lining, he added, is that Bangladesh Bank is no longer directly printing money to plug the fiscal gap—a move that would otherwise fuel inflation and erode banks’ capacity to lend to the private sector.
Earlier this year, Treasury bill yields had dipped below 10%, thanks to improved liquidity in the banking sector. However, by April, that downward trend had reversed.
At Monday’s auction, the 91-day T-bill yield rose to 11.58% from 10.35% in March—a 123 basis point increase.
Similarly, the 182-day bill yield climbed to 11.85% from 10.84%, while the 364-day yield reached 11.94%, up from 10.79% in January.
Treasury bills are short-term debt instruments issued by the government—usually maturing within a year—offering fixed returns with low risk.
By contrast, treasury bonds are long-term instruments ranging from 2 to 20 years, also available to individuals and institutions.
The rates on these instruments are dictated largely by banking sector liquidity: higher liquidity usually suppresses rates, while tighter conditions drive them up.
A senior official at Bangladesh Bank confirmed that interest rates had dipped for a time but are now rising again due to heightened government demand and a looming uncertainty over the next tranche of International Monetary Fund funding.
“The government will need to borrow even more from banks in the coming months,” he warned, explaining why banks are now demanding higher returns in auctions.
Bangladesh Bank Governor Ahsan H Mansur had earlier suggested Treasury rates would fall, stating in February that the era of assured profits from these instruments was nearing its end. Yet within a month, yields began to climb once more.
Pubali Bank Managing Director Mohammad Ali acknowledged the Governor’s efforts to contain rates but noted that inflation remains stubbornly high.
He also cited tightened repo conditions and stagnant deposit growth as contributors to the banking sector’s liquidity strain.
“Despite these challenges, banks are still lending to the government, which is why yields are rising,” he said.
Should inflation subside to around 7%, he suggested, treasury yields may again begin to fall.
According to Bangladesh Bank, the government borrowed over Tk930 billion from commercial banks in the first nine months of the current fiscal year (July–March).
Over the same period, it took no loans from the central bank and, in fact, repaid over Tk410 billion in previous borrowings.
This left the government’s net bank borrowing at roughly Tk520 billion—entirely sourced from commercial banks.
