The finance ministry on Sunday asked Bangladesh Bank not to arrange any auction of treasury bond in June, for second month in a row, as the government account is still facing an excess fund of Tk 5,000 crore.
According to the government auction calendar, the government is scheduled to take loans of Tk 2,100 crore from the banking sector in every month by arranging four or five separate auctions.
Due to the finance ministry initiatives, the central bank has postponed the auction of T-bond amounting to Tk 4,200 crore between May and June this year.
The finance ministry issued a letter on Sunday asking the central bank not to arrange any auction this month in the interest of government’s proper cash management.
The excess fund in the government account had gradually enlarged in the recent months as the net investment on the national savings certificates and bonds increased during the period.
Banks have recently enjoyed one of their main income sources by investing their idle fund in T-bond and T-bills due to the lower loan disbursement to the private sector amid sluggish business, a BB official told New Age on Sunday.
He said that the decision of postponement to arrange auction of T-bond for two months in a row was a rare example as the government had not taken such type of decision in the recent years.
The government’s decision will put an adverse impact on the scheduled banks as they are now also facing excess liquidity amid slow credit demand from the businesspeople against the backdrop of dull business due to political unrest.
The cut of yield (interest rate) on the T-bonds is now between 8.40 per cent and 11.97 per cent.
The banks will be compelled to lower the rate of interest on deposit products further as their scope for investment will be narrowed due to the finance ministry’s decision not to hold any auction for T-bonds for the two months in a row, the official said.
The government prepares auction calendar at the beginning of a financial year to borrow from the banking sector by issuing T-bonds and T-bills.
The rate of interest in the country’s inter-bank call money market also hit the lowest in May since 2009 after the postponement of auction of T-bond, the official said.
The weighted average rate on lending in the call money market stood at 6.79 per cent on May 4, the first working day of this month, and the rate decreased to 5.47 per cent on May 26, according to the BB data.
The interest rate on the call money market will decrease more due to the latest finance ministry’s decision, the BB official said.
According to the latest data of the Directorate of National Savings, the net investment in the savings instruments, which is the pivotal cause of increasing the idle amount with the government account, increased by 176.38 per cent to Tk 24,141.09 crore in July-April of the financial year 2014-15 compared with that of Tk 8,734.50 crore in the same period of the FY14.
The government set a net investment target of Tk 9,056 crore from the national savings certificates and bonds for the FY15, but the investment in the instruments crossed its annual target in just four months in this financial year.
Clients invested their fund in the NSCs as the banks are now offering 7 per cent to 9 per cent interest on the fixed deposit schemes while the interest rate on the government savings tools
was between 12.59 per cent and 13.45 per cent during the period.
Due to a significant increase in investment trend in the NSCs, the government has recently cut the rate of interest by around 2 per cent on its different savings tools to curb the investment.
The latest BB data showed that the government made no net borrowing from the banking sources in the July-March period of the FY15 but made net repayment of Tk 11,846.32 crore in the same period.
The government, however, has recently increased its borrowing target to Tk 32,653 crore for this financial year against its previous target of Tk 31,221 crore from the banking sources.
The BB official said that it was an unwise decision on the part of the government to raise its borrowing target as its account was now suffering from excess fund.