Bangladesh Bank’s (BB) generous devolvement in risk-free government securities, such as treasury bills and treasury bonds, has significantly increased, providing relief to banks’ liquidity stress. However, economists caution that this intervention could exacerbate inflationary pressures in an already overheated market.
The central bank’s purchase of these securities injects newly circulated money into the economy, potentially fueling inflation. As of May 2023, Bangladesh Bank’s total devolvement on treasury bills and bonds reached Tk 1.07 trillion, while primary dealers contributed Tk 21.07 billion. The net volume of devolvement stood at Tk 699 billion, reflecting the impact of maturity. The central bank considers various factors, including liquidity conditions, interest rates, and the cost of funds, when determining devolvement. By implementing devolvement, Bangladesh Bank aims to prevent additional liquidity stress that could arise from banks obtaining funds from the market. This approach helps maintain stability in the money market.To alleviate pressure on liquidity, the central bank has sold US$12 billion to banks for overseas transactions, requiring banks to spend over Tk 1.0 trillion to purchase foreign currency.