Dhaka, Bangladesh (BBN)– The interest rate on Treasury Bills (T-bills) dropped further on Sunday as commercial banks rushed to offer bids in the auction, treasury officials said.

The yield, generally known as interest rate, on 91-day T-bill fell to the range of 1.00-1.28 percent on the day from 1.51-2.02 percent of the previous auction held on July 19.

Besides, the yield on 364-day T-bill came down to 4.01- 4.29 percent on the day from 4.75-5.49 percent of the previous auction, according to the central bank statistics.

The government borrowed US$72.46 million (BDT 5.0 billion) on the same day through auctions of treasury bills, resulting in withdrawal of the money from the market this week.

Bidders offered bids for $148.74 million (BDT 10.263 billion) and $180.19 million (BDT 12.433 billion) respectively for 91-day and 364-day bills, according to a central bank press statement.

“The ranges of the implicit yield of the accepted bids were 1.00-1.28 percent and 4.01-4.29 percent annually respectively,” the central bank said in a press statement.

The demand for such securities has sharply risen mainly due to lower interest rates on call money in the inter-bank market that has forced banks to invest in the risk-free government securities, the treasury officials added.

The call rate ranged between 0.10 per cent and 10.00 per cent on the day unchanged from the previous level. But most of the deals were made at rates between 0.10 per cent and 0.15 per cent on the day, market operators said.

“Some commercial banks have quoted lower interest rates to invest their excess liquidity in the securities to minimize cost of funds,” a senior treasury official of a private commercial bank told BBN in Dhaka.

The overall excess liquidity with the commercial banks stood at $3.93 billion (BDT 270 billion) in April this year, representing a 25 percent growth over that in February last, according to the central bank of Bangladesh.

The amount of excess liquidity was $3.11 billion (BDT 215 billion) and $ 3.43 billion (BDT 237 billion) in February and March 2009 respectively, the BB data showed.

Currently, three T-bills are being transacted through auctions to adjust the government borrowings from the banking system.

The T-bills have 91-day, 182-day and 364-day maturity periods.

BBN/SS/SI/AD-27July09-2:35 am (BST)