Bangladesh's central bank said on Monday it will allow banks to hold up to 50 percent of their government debt holdings to maturity, twice that of earlier levels. "Banks can now hold HTM (held-to-maturity) securities up to 50 percent of the SLR (Statutory Liquidity ratio) from 25 percent of SLR earlier," a senior central bank official told Reuters.
The measure would help limit risk in banks' asset portfolios, said Mustafa K. Mujeri, Director General of Bangladesh Institute of Development Studies. It could have an indirect impact on credit flows as well, said Mujeri, a former central bank chief economist. Bangaldesh's capital markets are small and often illiquid, leaving participants vulnerable to bouts of volatility.
The central bank late last month raised its key interest rates by a quarter percentage point for the second month running to curb stubbornly high inflation. It raised the repo rate, which it uses to inject money into the banking system, to 6.25 percent, and the reverse repo rate, through which it absorbs excess cash from banks, to 4.25 percent. Bangladesh's annual inflation rate raced to a near three-year high in April to 10.49 percent, fired up by food prices. Food inflation in April hit 14.36 percent. The weighted average yield on 15-year Bangladesh government treasury bonds increased to 9.30 percent in April from 9.20 percent in March, according to the central bank.