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Dhaka, July 21, 2025 — Yields on short-term government securities have fallen significantly, with the interest rate on 91-day Treasury bills dropping by 1.13 percentage points in just one week to 10.45%, as improved market liquidity and reduced government borrowing ease pressure on interest rates.

The latest auction, conducted by Bangladesh Bank on Sunday, marks the lowest level for 91-day T-bill yields in four months. The rate had previously peaked at 12.10% in mid-June, amid market speculation about potential changes in central bank liquidity facilities.

Yields on other tenors also declined in the latest auction. The 182-day T-bill rate fell by 85 basis points to 10.70%, while the 367-day T-bill yield dropped by 27 basis points to 10.98%.

Liquidity Surplus, Policy Signals Drive Rate Decline

Bankers and market analysts attribute the rapid decline in yields to several key factors, including a surplus of liquidity, falling inflation, and policy signals from the central bank.

Sheikh Mohammad Maroof, Managing Director of Dhaka Bank, said the recent decline is largely driven by increased money market liquidity resulting from the central bank’s dollar purchases, a decline in inflationary pressures, and the recent reduction in the Standing Deposit Facility (SDF) rate.

According to Bangladesh Bank data, the central bank purchased $484 million from commercial banks recently, injecting nearly Tk 5,881 crore into the banking system.

Speculation Over Policy Support Withdrawal Eases

In June, treasury bill yields surged to record highs due to uncertainty surrounding the future of the 14-day repurchase agreement (Repo) and Assured Liquidity Support (ALS) facilities. However, yields began to ease after Bangladesh Bank officially communicated its decision to withdraw these tools starting September.

A deputy managing director of a leading private bank noted that the government’s net borrowing from the banking system is expected to be negative in the first quarter of FY2025. This means the government will repay more in maturing T-bills and bonds than it borrows, reducing pressure on the bond market.

Weak Credit Demand, Strong Deposit Growth

While overall credit demand remains tepid, certain banks with strong deposit growth have excess liquidity, which they are deploying into risk-free government securities.

Private sector credit growth slowed to 6.95% in May, well below the central bank’s 9.8% target, according to Bangladesh Bank data. Meanwhile, deposit growth during the same period stood at 7.73%, highlighting a widening gap between available funds and loan demand.

“Banks are turning to government securities as a safe and profitable investment option,” said a senior bank executive. “This heightened demand has intensified competition in T-bill auctions, leading to falling yields.”

Market Positioning for Potential Policy Rate Cut

Another senior banker pointed out that commercial banks are positioning themselves for a possible policy rate cut in the coming months. Bangladesh Bank has indicated to the International Monetary Fund (IMF) that it may consider reducing the policy rate if inflation falls below 8%.

With inflationary pressures easing and political uncertainty ahead of the upcoming national election, many businesses are delaying investment decisions. This has further dampened demand for capital machinery and long-term credit, reinforcing the current low-yield environment in the T-bill market.