The lending rate ceiling in banks reached nearly 12.38% on Wednesday, up from 10.7% in October last year.
The interest rate increased after the central bank on January 17 raised the policy rate by 25 basis points to 8% from 7.25% to address mounting inflationary pressures in the country.
The six-month moving average interest rate (Smart) of the 182-day treasury bill has increased to 8.63% for February from 8.14% in January.
The Bangladesh Bank also raised the interest rate corridor margin to 3.75% in November from the previous 3.5% and allowed banks to add the margin with the Smart rate.
Given the Smart of 8.63%, the highest limit for bank lending rate stands at 12.38% for February.
Criticisms from various quarters and recommendations by the International Monetary Fund prompted the central bank to take the step.
On June 18, 2023, the central bank in its monetary policy statement adopted a new interest rate regime, removing the previously imposed 9% lending rate ceiling.
Under the new framework, the lending rate for banks is determined by incorporating a 3.75% corridor with Smart of 182-day treasury bills.
Bangladesh Bank had imposed a 9% ceiling on the lending rate in April 2020. However, the restriction was lifted on July 1, 2023.
Although the central bank stated that lending rates would be determined by market forces, the reference rate with a margin would restrict banks from lending beyond the interest rate margin.
The Bangladesh Bureau of Statistics recently calculated that the monthly inflation in December was recorded at 9.41% compared with 9.49% in November and 9.93% in October.
Economists said that low interest rates also impacted dollar prices, contributing to the devaluation of the local currency due to cheaper money available to businesses.
The interbank dollar price increased to Tk110 each, while the rate was about Tk120 each on the open market.
The gross foreign exchange reserve in Bangladesh, according to International Monetary Fund guidelines, dropped to $20 billion on January 24 from $23.25 billion on August 31.
The Bangladesh Bank follows the IMF’s BPM6 for calculating gross and net international reserves.
