High interest of savings tools takes toll on bonds | The Daily Star
12:00 AM, June 19, 2017 / LAST MODIFIED: 12:00 AM, June 19, 2017

High interest of savings tools takes toll on bonds

High interest rates on the national savings schemes are taking a toll on the transactions of treasury bills and bonds in the secondary market, Bangladesh Bank (BB) officials said.

Turnover that includes purchase and sale of treasury bills and bonds in the secondary market declined to Tk 1,122 crore in May this year from Tk 1,786 crore in April, BB data shows.

The market saw a turnover of Tk 2,635 crore in March and Tk 5,389 crore in February.

Central bank officials said transactions may fall further unless the government adjusts interest rates of savings tools with the other market rates.

The government is borrowing heavily through savings tools that offer interest rates of 11.04 percent to 11.76 percent.  On the other hand, the borrowing cost stands between 2.84 percent and 7.13 percent through treasury bills and bonds.

BB data shows, the government borrowed over Tk 42,098 crore through savings tools during July-April period of the outgoing fiscal year, up by nearly 59 percent from Tk 26,488 crore in the same period a year ago.

“High interest rates on savings schemes are not only distorting the market but also pushing the government's debt burden up,” a BB official said.

Banks offer 5-6 percent for fixed deposits and the bond rate is around 6.5 percent. Call money rate has been hovering around 3.5 percent for the last one year.

Another BB official said turnover in the secondary bond market witnessed a significant rise in transaction during the October-February period, as the central bank allowed operation of the Trader Work Station (TWS) in a full-fledged manner since October last year.

Sellers and buyers are now allowed to settle their transactions through the TWS, a web-portal, operated by the BB, which attracts the clients to invest in bonds, he said.

But, transactions in the secondary market fell sharply in the last few months due to the government's initiative to cut the auctions in the primary market amid its excessive reliance on national savings schemes.

The government suspended all auctions of treasury bills and bonds in March and May and also squeezed its borrowing from the tools in April, according to BB.

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