The Bangladesh Bank has raised the overnight repo rate, also known as policy rate, by 75 basis points to 7.25 per cent, in a bid to tame the persistent high inflation in the country.
This decision came from the 60th meeting of the central bank’s Monetary Policy Committee, read a Bangladesh Bank circular released Wednesday. The move will come into effect on Thursday.
Besides, the regulator has hiked the interest on the Standing Lending Facility (SLF) by 75 basis points to 9.25 per cent, and on the Standing Deposit Facility (SDF) by 74 basis points to 5.25 per cent.
Speaking to The Business Post, Bangladesh Bank Executive Director and spokesperson Mezbaul Haque said, “The central bank has decided to hike the policy rate to curb the high inflation.”
Repo Rate is the interest rate at which the central bank of a country lends money to commercial banks. With the repo rate hike, commercial banks will now have to borrow money from the central bank at 7.25 per cent interest.
To tame inflation, one of the key measures any central bank can take is to tighten the money flow in an economy. If the key interest rate or the repo rate is raised, then the money will be costly, and the banks will borrow less, causing the money flow to decline.
Policy Research Institute of Bangladesh (PRI) Executive Director Ahsan H Mansur said, “This Bangladesh Bank move will only work if the banks’ lending rate rises too. When a country faces high inflation, the lending rate should rise.
“Otherwise the central bank will not be able to curb the inflation. The central bank is controlling the SMART rate, and this is why it will not work in controlling inflation.”
UCB Managing Director Arif Qadir said, “The latest central bank move will positively impact deposit and lending rates. The amount of deposits will increase in the banking sector because of the high profit per deposit.
“However, the lending rate should be increased as well, as the banks’ cost of borrowing is going up.”
The previous policy rate was implemented in the monetary policy of July 2023.
Bangladesh’s inflation stood at 9.63 per cent in September, show Bangladesh Bureau of Statistics (BBS) data.
A senior official, on condition of anonymity, said, “The central bank currently has a target to curb the high inflation rate. We increase our policy rate whenever the country faces high inflation.”
The central bank had increased the policy rate by 50 basis points back in July, and by 25 basis points in January this year.
In 2020, the regulator had cut the policy rate three times to implement its unconventional monetary policy on the backdrop of the Covid-19 pandemic. In July 2020, the central bank slashed the repo rate by 50 basis points to 4.75 per cent.