Central bank to scrap 9% interest rate to set it on market-based

The propensity to save has decreased due to high inflation. On the other hand, banks are not able to take high interest deposits due to 9 percent interest. As a result, a liquidity crisis has arisen. Besides, one of the conditions of International Monetary Fund (IMF) loans is to make interest rates on market-based. In such a situation, the central bank is withdrawing the existing maximum 9 percent loan interest rate.

The matter was discussed in a meeting regarding the monetary policy of Bangladesh Bank (BB) on Sunday (March 19), held with the Governor Abdur Rouf Talukder in chair.

The executive director and officers of the concerned department along with the deputy governor were also present in the meeting.

According to an official related to the meeting, the new monetary policy will be announced next June. The meeting discussed various issues of monetary policy. The IMF has a condition that the loan interest rate to be made on market-based. There has been a discussion on how to withdraw the existing 9 percent cap and leave it to the market management.

Bankers said the banks have been demanding the removal of the interest rate limit for long days. Because the banks are not able to increase interest on deposits due to the 9 percent interest limit on loans. Again, the loan is not available without increasing the interest. One of the conditions of the 4.5 billion US dollar loan given by the International Monetary Fund (IMF) is to make the interest rate market-based. Recently, in a research report of Bangladesh Bank, it has been recommended to withdraw or increase the interest rate limit.

According to the latest data of Bangladesh Bank, the interest rate on two-year bond is 7.55 percent, five-year bond is 7.90 percent, 10-year bond is 8.33 percent, 15-year bond is 8.77 percent and 20-year bond is 8.95 percent. The average interest rate of these five types of bonds is 8.30 percent. If Bangladesh Bank sets a five percent corridor rate with this rate, then the bank will get an opportunity to disburse loans at 13.30 percent interest. That is, if this policy is implemented, the minimum interest rate of bank loans will increase by four percent. Bangladesh Bank is thinking about this decision to control inflation and to fulfill the condition of getting loan from IMF.

According to sources, Bangladesh Bank has started working on the monetary policy for the next financial year. The new monetary policy is in the process of fixing policy rates and lending rates. 

Bangladesh Bank is primarily thinking about the reference rate and corridor rate in the interest rate of bank loans. The reference rate will basically be the average interest rate of the bond interest rate. Bangladesh Bank is supposed to set the corridor rate. The rate that will be the sum of these two, will be the interest rate of the bank loan.

Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque said work has started on the new monetary policy. The monetary policy will be announced in the third week of next June. The meeting discussed the monitoring of the current monetary policy and what will be in the next monetary policy.

He further said there was a discussion about what can be done to the interest rate of bank loans in the new monetary policy. Here we are thinking about banding and reference rates. These are being reviewed. Details of these issues will be announced in the next monetary policy.