For the past few years, business leaders have been voicing concern over high borrowing interest rates.
To reduce borrowing costs, they had also been demanding a cut in the policy interest rate.
In response to those demands, Bangladesh Bank reduced the policy rate by 50 basis points (0.5 percentage points) in August, bringing it down to 9.50%.
However, despite the decline in borrowing costs, private industry credit growth and investment have yet to show the expected momentum.
According to Bangladesh Bank data, in September 2025, the weighted average interest rates on deposits and loans rose to 6.42% and 12.16%, respectively—the highest levels in at least three years. Since then, interest rates have gradually eased.
By July of this year, the weighted average deposit rate fell to 6.21%, while the lending rate dropped to 11.81%.
Additionally, in June of this year, yields on treasury bills and bonds, as well as call money rates, declined compared to a year earlier.
These developments signaled a slight improvement in liquidity within the banking industry.
Since the banking system serves as the primary source of private industry financing in Bangladesh, this downward trend in interest rates should theoretically have expanded borrowing opportunities for businesses.
In reality, however, the private industry remains reluctant to borrow.
In June of this year, private industry credit growth slumped to just 4.47%—the lowest in 33 years.
Although it ticked up slightly to 4.62% in July, it remains far below Bangladesh Bank’s target of 6.8% by December.
Taskeen Ahmed, president of the Dhaka Chamber of Commerce and Industry (DCCI), stated that increasing private industry borrowing cannot be achieved solely by lowering interest rates; restoring investor confidence and business viability is crucial.
"The objective of lowering interest rates is to encourage borrowing. But business owners will only invest when they see adequate demand, a stable environment, and the prospect of reasonable returns on their investment."
Taskeen Ahmed noted that while cheaper credit looks appealing on paper, high operational costs and sluggish consumer demand prevent entrepreneurs from taking the risk of deploying new capital.
Banks cautious as well
On the supply side, as non-performing loans mount and structural weaknesses in the financial industry deepen, banks have become increasingly cautious about extending new credit.
Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh (PRI), suggested that weak credit demand might itself be driving interest rates down. When business appetite for borrowing vanishes, competition among banks to attract deposits decreases accordingly.
He warned that falling interest rates should not automatically be interpreted as a sign of economic recovery. Lower rates may reduce financing costs for existing borrowers, but if investment remains weak over a prolonged period, employment, productivity, and the pace of economic recovery could suffer.
According to Rahman, cheap credit alone cannot offset uncertainties surrounding reliable energy supplies, market access, and future profitability. Revitalizing investment requires dependable energy, political and policy predictability, and credible reforms to establish a business-friendly environment.
DCCI president Taskeen Ahmed warned that delayed investment could erode the country's long-term manufacturing capacity, ultimately harming exports and employment. Therefore, policy must go beyond making credit cheap and focus on lowering the overall cost of doing business.
He noted that over the next one to two years, the primary challenge may not be attracting new investments, but helping existing private investments survive.
