No floor rate on deposit, interest on consumer loan set at 12%

Bangladesh Bank has withdrawn the specific interest rate on bank deposits. From now on, banks and financial institutions will be able to set their own interest rates on deposits.

The announcement came from the monetary policy statement for the second half of the current fiscal year 2022-23 which was unveiled at the BB conference room on Sunday.

According to the new monetary policy, considering the current market situation, the minimum interest rate on deposits has completely been withdrawn. Apart from this, it has been announced to increase the interest rate on consumer loans.

Bangladesh Bank has said that the interest rate on consumer loans can be increased up to 3 per cent. At present, the interest rate on all types of bank loans is fixed at 9 per cent except credit card loan. Now the banks can raise the interest rate on consumer loans up to 12 per cent.

While speaking on increase in the consumer loan interest rate, the central bank governor Abdur Rouf Talukder has expressed the hope that it will help tame inflation. At the monetary policy unveiling ceremony, he also said that increasing the interest rate on consumer loans will reduce the demand for these loans as it will impact inflation.

Disagreeing with him, Zahid Hussain, former lead economist of World Bank Dhaka Office, told The Business Post that consumer loan is a very small portion of the total disbursed loans. This small portion will not help reduce inflation, he added.

According to the Bangladesh Bank and Bangladesh Bureau of Statistics (BBS), now the average interest rate on banks deposit is over 4 per cent. On the other hand, the inflation rate is up to 8 per cent.

So, the real interest rate is negative and depositors are less interested to keep their savings in the banks.

In this context, the governor of the central bank in the monetary policy unveiling programme said that the government and institutional depositors withdrew their money from the banks due to a recent economic crisis.

“But individual depositors are keeping their savings in the banks and this type of deposit growth was 8 per cent last year,” he added.