Economists said the interest rate should come down to a single digit soon as the recent downward adjustment of cash reserve requirement (CRR) and decision to allow deposits of up to 50% of state agency funds in private banks will address the liquidity crisis in the banking sector.
They requested Bangladesh Bank (BB) to take pragmatic measures including strengthening its monitoring activities and maintaining transparency in the banking sector for the sake of the economy.
"There is a scope for banks to cut the lending rate as the government has already reduced the CRR rate, which will help meet the liquidity crisis in the banking sector," said former finance adviser to the caretaker government Mirza Azizul Islam.
“The growth of deposits has dropped recently. So, banks need more deposits to counter their liquidity crisis,” he added.
"More importantly, the central bank has reduced the CRR rate, which will help banks meet the liquidity crisis to a large extent," said Mirza Azizul Islam.
Recently, BB has re-fixed the CRR at 5.5% for commercial banks on bi-weekly average basis from 6.5%.
To tackle the liquidity crisis in the sector, the government has also taken a decision to allow state agencies to deposit 50 % of their funds rather than 25% in private banks.
Bankers highly appreciated the decisions about the CRR and deposit of state agency funds in private banks, but said it will take time to bring down the interest rate to a single digit.
"Bangladesh Association of Banks (BAB) has given an indication about bringing down the interest rate to a single digit by the end of the year," Islami Bank Bangladesh Limited Chairman Arastoo Khan told BSS.
Khan, also vice chairman of the BAB, said “Recently banks have faced liquidity crisis, so they need more deposits.”
"More deposits mean more interest. The banks have expenditures. So, the interest rate has been increased," he added.
NRB Global Bank Chairman Nizam Chowdhury said, “Interest rate depends on demand and supply.”
“If the flow of money in the market increases, the interest rate will normally decrease,” he added.
Nizam Chowdhury said, “Private banks will be able to overcome the liquidity crisis, which will also help bring down the interest rate.”
Social Islami Bank Limited (SIBL) Chairman Professor M Anwarul Azim Arif said “If the deposit rate decreases, the lending rate will also decline.”
“The interest rate depends on demand and supply of money in the market,” he added.
Research Director of the Centre for Policy Dialogue (CPD) Dr Khondaker Golam Moazzem said, “The lending rate of banks should come down to a single digit to boost the country's economy as a low interest rate helps accelerate the economy.”
“The central bank can play a vital role in reducing the interest rate by beefing up its monitoring activities and creating more transparency in the banking industry,” he added.
Recently, Finance Minister AMA Muhith said, “Interest rate in the banking sector will come down to a single digit within one month.”
"I am glad to know that bankers have taken a decision to bring down the interest rate to single digit within one month," he said.