Lenders will need to pay a bit higher interest for loans from banks as the Bangladesh Bank (BB) has hiked it. The new rate came into effect on Thursday, the first day of February.
The Six-month Moving Average Rate of Treasury bills (SMART) has been increased by 0.54 per cent to 8.68 per cent for February, up from January’s 8.14 per cent, according to latest BB data.
As a result, the banking lending rate stands at 12.43 per cent for the month of February. The rate was 11.89 per cent before the increase.
After lifting the interest rate cap in July 2023, the central bank set new interest rate calculation methods, which is known as the SMART rate. Under the new calculation method, banks can add a 3.75 per cent additional margin with the SMART rate.
Experts have said that the interest rate hike would not tame the ongoing high inflation rate.
Bankers are also not happy because the cost of funds increases as interest rates rise, resulting in less credit being disbursed than before. At the same time, the deposit interest rate would increase as well. Due to these two factors, banks’ profits will shrink.
Toufic Ahmad Choudhury, former director general of Bangladesh Institute of Bank Management, told The Business Post, “Interest rates should have been made market-based.
“However, the government is buying treasury bills, so there is a sort of behind-the-scenes control on this new rate. The bankers are not happy about it.”
“We need to focus more on controlling food inflation than raising interest rates because this inflation is increasing due to supply disruptions. The government should take effective measures to tackle this issue,” added the financial sector expert.
The central bank in November last year increased the policy rate, or repo rate, by 50 basis points to 7.75 per cent to tame the ongoing high inflationary pressure.
BB wanted to reduce inflation to 8 per cent by December and 6 per cent by June. To reach this target, the decision to increase the policy rate again may come, officials have said.
Talking to The Business Post, Policy Research Institute of Bangladesh Executive Director Ahsan H Mansur said, “BB is continuously controlling the lending rate through SMART rate. It should be market-based, or this tool will not work in the economy.”
