Interest rate hike good news for depositors

For nearly one year savers have had almost no return on bank deposits discouraging them to look for al-ternatives. As return was negative people shied away from deposit schemes that plunged banks into liquidi-ty crisis. For quite a long time economists and businesspeople have been urging the government and the central bank to increase the interest rate on deposits.

As the government in April 2020, set a lending interest rate cap on consumer loans, banks have been una-ble to raise the interest rate on deposits depriving people of good return. Good return from deposit scheme acts as stimulus for people to go for more deposit schemes. When there is no return why should they go for such pointless schemes? But in January this year the government relaxed the lending interest rate cap paving the way for increasing interest rate on deposit.

When interest rate on consumer loans was fixed at 9 per cent people began to take more loans what ulti-mately put strains on banks’ liquidity. The decision compelled banks to reduce interest rate on deposits depriving clients of good returns on their deposits. The government’s decision to set the interest rate cap on consumer loans coincided with a lot of other factors.

Soon after the government’s decision the corona pandemic struck the country. The pandemic deepened economic crisis all over the world the wave of which also hit our country. The situation exacerbated with the Russia’s invasion of Ukraine. With the war prolonging the economic crisis reached its zenith leading the country to a dollar crisis that still continues. As the dollar crisis continued banks are forced to purchase US dollar from the central bank in exchange for taka to facilitate imports.

The Bangladesh Bank had to inject about $9.50 billion into the money market between July 1 and February 9. It injected a record $7.62 billion into the market during the entire financial year of 2021-22 to pay for a huge amount of import bills. Adding to that, the domestic bank mismanagement contributed no less than the international factors.

A good number of savers have withdrawn their money from banks to invest them in other areas like the stock market. They have done so as they have lost their faith in banks due to allegations of irregularities in some banks in the country. All the factors together compounded the crisis with lower interest rate on de-posit than the inflation rate. Under this situation the government revised its decision in January this year.

It is good news for the savers that over the past several months the banks have slightly increased the inter-est rate on deposits. Reports in newspapers quoting the central bank data showed banks offered as high as 8 percent interest on fixed deposit to pull back the savers they had lost.

Most of the banks have already increased their interest rates both on loans and deposits after the central bank relaxed the lending interest rate cap. Though the increase is yet to reach the expectation of the sav-ers it has already instilled some hope in the minds of depositors. Banks are still under stress because of lower return compared to that of the growing inflation.

We hope that the rise in interest rate on deposit will play a positive role in protecting the banking health during this volatile economic situation.