IMF asks BB to lift interest rate limit

The International Monetary Fund (IMF) has asked the Bangladesh Bank to withdraw the interest rate limit on loans and deposits as well as keep accounts of both net reserves and gross reserves.

A high official of the central bank told The Business Post on Thursday the global lender had asked to withdraw the interest rate cap on loans and deposits because it is contradictory in an open market economy.

The visiting IMF mission, led by its Mission Chief to Bangladesh Rahul Anand, met Governor of the central bank Abdur Rouf Talukder as well as deputy governors Ahmed Jamal, AKM Sajedur Rahman Khan, and Kazi Sayedur Rahman on Thursday.

The delegation scheduled a series of discussions with high officials of the central bank for October 30 and 31 at the regulator’s headquarters. Bangladesh is seeking $4.5 billion in loans from the IMF, and this will be a key matter during the discussions.

Besides, matters related to trade deficit, cross-border interbank loans, gross reserves, external loans, exchange rate development, oil import volume, banking sector issues, monetary and exchange rate issues, calculation of net reserves, and the current challenges faced by the banking sector will be discussed.

The interest rate limit on loans, a widely discussed matter in the country, was introduced by the central bank on April 1 in 2020. The central bank capped the lending rate at 9 per cent and the deposit rate at 6 per cent.

Though the move led to strong criticisms, the central bank is yet to make a decision on withdrawing the caps. However, it is planning to withdraw the interest rate limit on consumer loans.

The Bangladesh Bank official said the visiting IMF mission had also asked to keep accounts of both net reserves and gross reserves.

Bangladesh’s forex reserves stood at $35.98 billion on October 20, down from $46.19 billion at the same time last year, show data from the central bank.

However, insiders say the net forex reserves stand at $27.98 billion as per the IMF calculation because around $8 billion has been invested, including $7 billion in the Export Development Fund.

After Thursday’s meeting, Spokesperson for the Bangladesh Bank Abul Kalam Azad told journalists it was a fruitful discussion. “We hope a decision on the $4.5 billion loan will come from the IMF within a few days,” said Azad, also the executive director of the banking regulator.

The IMF mission will stay in Dhaka until November 9. On that day, it will hold a wrap-up session with the central bank governor, deputy governors, and other key officials.