Since the Bangladesh Bank recently raised the benchmark rate, known as Six-Month Moving Average Rate of Treasury Bill or Smart, the interest rate against borrowing from banks has already surged to 11.47%.
According to Bangladesh Bank data, during the first two months of the fiscal year FY24, in July and August the interest rates were 7.10% and 7.14% respectively.
Then in September and October, the rate was again increased to 7.20% and 7.43% respectively.
In November, it was further raised to 7.72%.
The new move came in effect from December 1.
Data analysis revealed that within just one month, Smart increased by 29 basis points, the highest in the last six months, making borrowing even costlier.
Bankers and economists told Dhaka Tribune that when banks borrow at 7.75% from the Bangladesh Bank, they will quote a higher rate for treasury bills, which is linked with the lending rate.
The rise in the policy rate will surge the deposit rate also, they feared.
On the other hand, this latest hike in the policy rate will increase borrowing costs for commercial banks from the central bank which will eventually push the lending rate up.
When the lending rate goes up, it will make money costlier for consumers reducing credit demand which will ultimately ease price pressure.
However, Bangladesh Bank wants to reduce inflation to 8% by December and 6% by June next year.
To reach this target, the decision to increase the policy rate again may come, officials say.
To tame the ongoing high inflationary pressure, the central bank increased the policy rate or repo rate by 50 basis points to 7.75% in November 2023.
