The Bangladesh Bank elevated its interest or policy rate by .25 points, which now stands at 5%. This is a significant development that is expected to raise the cost of lending and reduce inflation. This means that banks will have to take funds from the central bank at the new repurchase agreement rate of 5%. However, Bangladesh Bank issued a circular mentioning the reverse repo rate will remain constant at 4%.
In 2020, BB cut the policy rate down by .50 points from 5.25 percent, which lowered it to 4.75 percent. On January 5, 2012, Bangladesh’s central bank raised the interest rate by .50 points to 7.75% which was the highest of all time. Over time, the rate has decreased.
To pursue its unconventional monetary policy, the central bank reduced the interest rate three times in 2020. Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh mentioned his concerns regarding the increase in the interest rate as a positive development but cautioned that it would be difficult to get advantage from the change.
According to him, “The central bank should withdraw its lending rate cap in order to make the interest rate hike effective. And Importers will feel discouraged to import goods if the cost of loans goes up.”
Under the condition of anonymity, a senior BB official stated that the central bank is now evaluating the effects of removing the loan ceiling. The elimination of the lending cap will have an effect on the deposit rate since the taka will become more attractive.
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