Home ›› 01 Jun 2022 ›› Front
Businessmen are dead against the increase in interest rate cap in such a highly volatile economic situation of the country.
They said businesses are still counting loss due to corona pandemic. Just as the economy is rebounding from the shock of the pandemic they are moving towards new investment but depreciation of money against dollar has put them under fresh pressure.
Under such circumstances, they think, the interest rate cap lifting move should not take place . They say pressure of money inflation in Bangladesh is temporary. It may be avoided if a six-month target is taken.
Therefore, if it is increased it will inflate the investment and business expenditure resulting in more inflation in future. Bangladesh Bank increased its repo, better known as policy rate, to 5 per cent that might cast a negative impact on the commercial banks. Liquidity crisis at the banks is deepening.
Which is why, bankers and economists are advising the BB to withdraw the highest ceiling on the lending rate cap.
Fixing the ceiling of the interest rate is a distortion. The market itself will set the balance between demand and supply. When imposed it creates problems, economists say.
They demanded realization of defaulted loan rather than the rise in the interest rate. They also think that the way the banks unethically compete with each other to collect deposits should be stopped immediately.
In this regard former FBCCI president and Director of Eastern Bank Mir Nasir Hossain told The Business Post: “We are passing through various problems. As the dollar has become costlier prices of imported raw materials have increased.”
On the other hand, the government is planning to increase the price of electricity, said Mir Nasir Hossain, also the Managing Director of the Mir Akhter Hossain Ltd.
Altogether people of the country of all walks of life are under a big pressure of inflation. Under this circumstance if the cap on the interest rate is withdrawn it will increase expenditure of investment many times. Expenditure of existing business too will go up fuelling the money inflation further.
He said: “I think ceiling should continue to be in place, otherwise interest rate will again rise in leaps and bounds. It will not only dent business and investment but also further aggravate the money inflation. This is why it shouldn’t be withdrawn at this moment. When the situation goes to normalcy it can be gradually withdrawn.”
Managing Director of Agrani Bank Mohammad Shams-Ul-Islam told The Business Post that the time is yet to come to withdraw the cap on the interest rate. As the economic situation is unstable we have to wait a bit to do that. But we have to move to its withdrawal. When the situation comes back to normalcy gradually the interest rate can be increased.”
Nitol-Niloy Group owner and former FBCCI president Abdul Matlub Ahmad told The Business Post that inflation in Bangladesh is temporary.
It will come down in six months if measures are taken. Until then if interest rate cap is withdrawn this will again go up to 15-18 per cent, he apprehends.
“You cannot stop them (banks). After all they are businessmen at the end of the day. They will prioritize their profit. Now the banks have to follow some rules and regulations which are better for both banks and businessmen,” he observed.
Considering the overall liquidity reserve and low private sector credit growth which is around 11.50%, the interest rate cap may continue for the time being unless the private credit and macroeconomic situation improves, told Rizwan Rahman, president of Dhaka Chamber of Commerce and Industry (DCCI).
If cap is withdrawn, the banks may increase the cost of lending which will further enfeeble the vulnerable businesses and slow down the credit flow and recovery of businesses, he hopes.
Former FBCCI vice-president and BGMEA former president Siddiqur Rahman too takes a strong position against the increase in the interest rate.
Banks should collect deposit at low interest and the same should apply to interest rate on loan. But they compete unethically among themselves in collecting deposits. The outcome of such competition shouldn’t harm the businessmen.
Why does the entire business community take the responsibilities of bad loans of the banks that follow no rules while disbursing loans? The government should remove irregularities from the banking sector without increasing the interest rate.
The present volatile situation along with the corona pandemic the business community is now counting loss. Investment is not up to the expectation even with the existing interest rate and if it is increased the situation will further worsen. “I, under no circumstance, can support it,” he said emphatically.
However, another former FBCCI president and Hamim Group owner AK Azad thinks that the cap should be withdrawn. In reality, cap is not effective, said AK Azad, also the Director of Shahjalal Islami Bank.
Businessmen have to move forward taking into consideration the reality, he thinks.
Now the market is volatile and at this moment cap should be in place. Market should follow its own course. The investors have to move on considering everything. Nothing can be kept in place forcibly. Not only interest rate on loan he also wants the government to withdraw the rate of dollar set in motion by the government.
The cap on the rate of dollar fixed by the Bangladesh Bank should be withdrawn too because it will reduce the inflow of remittance through formal channel as the rate is more than the formal rate, he said.
