BB introduces longer-term bills to fight inflation

The Bangladesh Bank has decided to introduce two more bills which would have tenures much longer than those of the three bills currently available in an effort to mop up excess liquidity from the money market and rein in runaway inflation.

The 90-day "Bangladesh Bank (BB) Bill" and 180-day BB Bill are aimed at enforcing the tight monetary policy by curbing excess demand in the economy alongside consumer prices.

The existing 7-day BB Bill, 14-day BB Bill and 30-day BB Bill were reintroduced through auctions since August 2021 after a three-year suspension.

"We are going to hold auctions of longer tenure bills for better implementation of the monetary policy," said a senior BB official.

The central bank yesterday withdrew Tk 452 crore from the money market by auctioning the BB bills. The cut-off yield or the minimum price was 11.10 percent, according to the BB.

The bills are aimed at enforcing the tight monetary policy by curbing excess demand in the economy

The BB official said the banking regulator would use the BB bills by analysing the market situation. "We will hold auctions for the longer tenure BB bills depending on the market situation," the official added.

With inflation remaining at over 9 percent since March 2023, the BB has been maintaining a contractionary monetary policy for the past two years to contain demand-induced price spikes.

The central bank has hiked the key policy rate to 10 percent to make borrowing costlier for the 11th consecutive time since May 2022.

Bangladesh's annual average inflation rose to 10.05 percent in October due to rising prices.

Overall inflation hit a three-month high of 10.87 percent in October, driven by soaring food prices, especially for rice and vegetables.

Another BB official said the central bank plans to withdraw excess liquidity from the banking sector through the BB bills and provide funds to the crisis-hit banks. Six banks are facing a severe liquidity crisis and struggling to repay depositors.

The banking regulator already provided a hefty amount in liquidity support to those lenders, the official added.

However, a treasury chief of a private bank said if liquidity support was provided to the Shariah-based banks by mopping excess liquidity, it may not contribute to controlling inflation as money would return to the market through those banks.