Unlike in the past, the coupon rate on Treasury bill, which is its interest will be determined by market forces. This is being done, given the financial system experiencing excess liquidity.
The central bank, the Royal Monetary Authority has floated Treasury bill worth Nu. 3B on behalf of the government.
In the past, coupon rates were predetermined and the rate usually ranged between 4 to 5 percent. Today however, since there is increasing demand from corporations and commercial banks, the government or the central bank has more leeway in lowering the rate.
A banker said since most of the banks are desperate to offload excess cash and use them by investing, the rates could go as low as below one percent.
The higher the demand from the market, the lower will be the rate and the lesser the demand from the market, the higher the rate will be.
This is likely to discourage many institutions from investing in the bills. An official from a private bank said it doesn’t make sense for smaller banks to invest if the returns are that low.
Only if you have a lot of excess cash and doesn’t know where to put them, then you might as well invest them in T-bill, he said. “I will find another way to invest my excess money.”
Although the objective of floating Treasury bill by the government is nothing to do with liquidity, it will mop up some amount of excess cash from the system. Finance Secretary Lam Dorji said, the government has nothing to do with liquidity matters and that, it entirely fell under the purview of the central bank.
The Secretary said floating of Treasury bill was a usual affair of the government. T-bills will be floated whenever the need arises, he said. Some of the money that will be raised through this offer would also be used to pay off the money the government owes from its previous T-bills.
In a bid to mop up excess cash, the central bank beginning this month increased the Cash Reserve Ratio (CARR) from five percent to 10 percent and thereby mopped up excess cash from the system to the same extent. The CARR is the minimum reserve requirement mandated by the central bank. It requires commercial banks to set aside certain percentage of their deposit base as reserves with the central bank.
