Bangladesh’s financial sector is bracing for higher lending rates as borrowing costs for the government hit a ten-year high.

Treasury bill yields, which indicate the interest rate the government pays on short-term loans, reached 11.5% in recent auctions, up from 7-8% just months ago.

This surge stems from a government fund shortage. With central bank money printing on hold, the government is relying heavily on commercial banks and individuals to fill the gap. To entice investors, they’re offering attractive returns on treasury bills, drawing funds away from bank deposits.

The consequences are likely to ripple through the economy. Banks, facing an exodus of deposits and higher borrowing costs themselves, are expected to raise lending rates for businesses and individuals. This could stifle economic growth and add pressure to already rising inflation.

Experts warn that the government’s heavy reliance on borrowing is unsustainable. They urge authorities to find alternative ways to finance expenditures and tackle inflation before the debt burden becomes unmanageable.