Bank borrowing becomes costlier

Interest rate jumps to 11.89 pc


Staff Reporter :
On the first day of the New Year, interest rate against borrowing from banks has surged to 11.89 per cent as the Bangladesh Bank (BB) has revised its key policy rate by 50 basis points to 7.75 per cent to tame inflation, making borrowing more expensive.

The consumer loan (retail loan) receivers now have to pay the higher 13 per cent interest starting, while other borrowers have to pay almost 12 per cent in interest to the banks.

Industry insiders marked this move as a regular contructionary effort to tame the current inflation, the country witnessed and a step forward to increase banks’ liquidity.

By contrast, the step of increasing lending rate will make the loans costlier, which may decrease the loan demand.

The private sector credit growth in Bangladesh slumped to 9.75 per cent in August, the lowest in 22 months and 9.69 per cent in September, as businesses and individuals reined in borrowing amid economic headwinds and political uncertainty surrounding the 12th parliamentary elections, they added.

Eminent economist and the former lead economist of the World Bank Dhaka office, Zahid Hussain, said regarding this increase of interest rate that the tendency of the increasing inflation rate may stop at some point due to this small rate increase.

To back the inflation level at a tolerable margin, he advocates, the lending rate needs to be revised up further.
Earlier, in the monetary policy for the July-December period, the Bangladesh Bank introduced SMART to fix the lending rate.


The policy says banks can add a maximum 3 per cent and non-bank financial institutions (NBFIs) a maximum 5 per cent with the SMART rate to fix the lending rate.

According to the Bangladesh Bank data, during the first two months of the fiscal year — July and August, the interest rate was at 7.10 per cent and 7.14 per cent respectively. Then in September and October, the rate was again increased to 7.20per cent and 7.43per cent. In November, it was further raised to 7.72 per cent.

The benchmark interest rate in December-end was raised to 8.14 per cent.

Increasing the borrowing interest rate, banks are also increasing the deposit interest rate. According to data from the Bangladesh Bank, currency held by individuals outside of banks amounted to Tk2.91 lakh at the end of June this year. However, by the end of August, this figure had decreased to Tk2.58 lakh.

Central bank data for October 2023 reveal a nearly 10 per cent increase in bank deposits, totalling Tk 12,852 crore. Of this, Tk 7,562 crore originated from outside the banking system.

As a result, the overall deposits in banks reached Tk16.36 lakh crore in October, up from Tk16.23 lakh crore in September.