Bangladesh Revising Yield Rates On Government-Approved Securities

October 7, 2007 12:26 p.m. EST

Dhaka, Bangladesh (AHN) - The Bangladesh Bank (BB), the country's central bank, continues to revise the yield rates on government approved securities aiming to reduce spread between the interest rates on short-term and long-term securities, official says in Dhaka on Sunday.

"We have an intention to dampen inflationary expectation through revising the interest rates on government-approved securities," a BB senior official told AHN in Dhaka. He also said the central bank is trying to reduce the gap between the interest rates on short-term securities and long-term government bonds in line with its monetary policy.

"In order to dampen inflationary expectation, it may be prudent to reduce the gap. This may be done by changing to short-term interest rates and developing secondary market of the government securities leading to lowering of yield on long term bonds," the central bank said in its fourth monetary policy, which was released on July 12, 2007.

Under the move, the yield rates on long-term government approved securities have gradually declined while the interest rates on short-term securities have gone up slightly.

The declining trend of interest rates on long-term government bonds indicates that the economic managers are planning to curb inflationary pressures on the economy on a long term basis.

The yield, generally known as interest rate, on a five-year Bangladesh Government Treasury Bond (BGTB) has decreased and it was down to 10.74 percent in September versus 10.80 percent the previous month. The yield rate on 10-year BGTB also declined to 11.95 percent in September as compared to 12.15 percent in August, according to the central bank statistics.

Treasury officials, however, are expecting the yield rates on the long-term securities, such as the four government approved bonds, to increase further by the early 2008. That should come after a adjustment in mismatch of funds in the market.

The maturity of five-year government treasury bills from August to November will be worth about $582.49 million (BDT 40.00 billion) while the government is expected to borrow around $276.68 million (BDT 19.00 billion) through issuing long-term bonds in line with the treasury auction calendar.

As a result, the yield rates on long-term government bonds gradually decreased in the recent months, they added.

"It's a problem of mismatch of fund in the market," a senior treasury official of a private commercial bank told the AHN in the capital, Dhaka. He also said the yield rates on long-term government bonds will move further by February 2008.

On the other hand, most of the banks did not show interest to invest in the short-term securities mainly due to lower interest rates that do not match their cost of funds.

The interest rates on such short-term securities are hovering between 7.29 percent and 8.48 percent, but the cost of funds on an average is over 10 percent, they noted.