Lenders will need to pay a bit higher interest for loans as the Bangladesh Bank has hiked this rate. The move will become effective from December this year.
Six-month Moving Average Rate of Treasury bills (SMART) was increased by 0.29 per cent to 7.72 per cent for December this year, up from 7.43 per cent in November, shows latest data from the Bangladesh Bank.
As a result, the banking lending rate stands at 11.47 per cent for the month of December. The figure was 11.18 per cent before the increase.
After lifting the interest rate cap in July, the central bank set new interest rate calculation methods, which is known as the SMART rate. Under the new calculation method, banks can add 3.50 per cent additional margin with the SMART rate.
So the bank lending rate was 11.18 per cent in November.
Experts have said that the interest rate hike could not tame ongoing high inflation. Bankers are also not happy with the new rate because banks’ deposit rates are increasing due to high inflation and liquidity shortages.
Toufic Ahmad Choudhury, former director general of Bangladesh Institute of Bank Management, told The Business Post, “Interest rates should have been made market dependent.
“However, the government is buying treasury bills, so there is a sort of behind-the-scenes control of this new rate. The bankers are not happy about it.”
We need to focus more on controlling food inflation than raising interest rates, because such inflation is increasing due to supply-side disruptions. The government should take effective measures to tackle this issue, added the financial sector expert.
The central bank increased the policy rate or repo rate by 50 basis points to 7.75 per cent to tame the ongoing high inflationary pressure in November 2023.
The Bangladesh Bank wants to reduce inflation to 8 per cent by December and 6 per cent by June next year. To reach this target, the decision to increase the policy rate again may come, officials say.
Speaking to The Business Post, Policy Research Institute of Bangladesh (PRI) Executive Director Ahsan H Mansur said, “Bangladesh Bank is continually controlling the lending rate through SMART rate. It should be market-based, or this tool will not work in the economy.”