Treasury bill market is restricted to buying and selling of government treasury bills. In the past, it was basically concentrated in transaction of government treasury bills of 3-month maturity at predetermined rates. Commercial banks were obliged to buy these bills as approved security to meet their statutory liquidity requirement (SLR) under the Banking Companies Act. However, the availability of the government treasury bills depended only on the fiscal consideration of the government. Bangladesh Bank had no scope of its own to increase or decrease their supply. Besides, interest rates were not market based and were fixed arbitrarily by the government from time to time. In addition to the commercial banks, Bangladesh Bank also had to hold a portion of government treasury bills.
Despite regular auction
of Bangladesh Bank Bills, government treasury bills continued its normal
transaction in the market. However, following the declaration of Bangladesh
Bank Bills as approved securities for the SLR purposes, the effectiveness of the
bills weakened as an instrument of monetary control. The auctions of Bangladesh
Bank Bills were, therefore, suspended from March 1997. Newly introduced 28-day,
91-day, 182-day, 364-day, 2-year and 5-year government treasury bills since
September 6 1998.