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Bangladesh - 2 weeks ago

Interest rate and dollar crisis will hurt consumers

Mahfuja Mukul: In the future, the price of the dollar and the interest rate on loans will increase. Along with this, import costs and production costs of products will increase. As a result, the price of the product will also increase.
Entrepreneurs are worried about this. Meanwhile, as the price of goods is increasing, the income of people is not increasing. Consumers have been suffering from the economic downturn since Corona. There is currently no relief from the specter of rising commodity prices. In the prevailing situation, the interest rate of the loan and the dollar will suffer more for the consumer.
From Thursday, the price of the dollar increased by Tk 8 to Tk 110 to Tk 118. As the cost of import will increase, so will the cost of production. At the same time the value of money has decreased. This will increase the pressure on the consumer. This pressure has not yet fully hit the consumer. Before that came another bad news.
The ‘crawling peg’ introduced by the central bank to the dollar is temporary. After adjusting this system with the market, the price of the dollar will be fully market-based.
From the previous system, when the ‘crawling peg’ was introduced, the price of the dollar was increased by Tk 8. Entrepreneurs are now worried about how much the price will increase if the market is based on the crawling peg.
Because traders have to depend on imports. When the value of the dollar rises, so does their cost of imports. The market has not yet adjusted to the pressure of increasing the price of the dollar by Tk 8. Now there is an advance message of rising dollar price again. No business planning can be done in it.
In the last two years, the price of the dollar has increased from Tk 85 to Tk118. Still, the market does not match the dollar at that price. Imported dollars still have to be bought at Tk125. Dollar has to be bought in advance at Tk125 to Tk129.
Meanwhile, banks are still buying remittances at higher rates. As a result, they are not able to sell dollars at low prices. In June 2021, the price of the dollar was Tk85. In June 2022, it increased to Tk92. In June 2023, it increased to Tk95. Tk110 in September 2023. It has increased by Tk118 since Thursday.
In this context, the former governor of the central bank Salehuddin Ahmed said that a permanent and long-term approach is needed to increase the price of the dollar. Which will work hand in hand with the market. A sudden increase in the price of Tk7-8 per dollar sends a negative message to the market. Many may think that the dollar crisis may be too much. This created a rumor in the market. Which hurts the economy. A gradual appreciation of the dollar does not have much of a negative impact on the market. Exporters and expatriates will benefit to some extent as a result of higher increases together. But importers will suffer. It should be remembered that the import of Bangladesh is very high. Besides, there are also foreign liabilities.
He also said that if the price of the dollar rises more, it sends another negative message to the market, many may think that the price of the dollar will rise further. Exporters and expatriates can then slow down the growth of remittances.
Meanwhile, the loan interest rate corridor has been announced from July 1. The interest on the loan is determined based on the average interest rate on six-month treasury bills of the government. During that time, the loan interest increased from 9 percent to a maximum of 14.55 percent. From Thursday this system has been canceled and the loan interest has been made market-based. Henceforth, banks will set interest rates based on demand and demand for disbursement of loans. After this announcement, now the banks are setting new interest rates. After fixing various interest rates it will be effective from June after approval in the council meeting. Then the interest rate will increase.
An official of the commercial bank said that the banks are now suffering from liquidity crisis. To meet this crisis now will take high interest deposits. As a result, the loan interest will be forced to increase. In particular, interest on consumer loans will increase. This rate can exceed 15 percent. However, the banks have been verbally told by the central bank not to increase the loan interest rates in the manufacturing and agricultural sectors. Before July, the interest rate on loans to the manufacturing sector was 8 percent. Now it has increased to 12.55 percent in agriculture and 13.55 percent in industry. This rate may increase a little more in the future. However, the central bank has said that the interest rate of these loans should be kept within this range.
According to sources, the cost of imports is increasing due to the increase in the dollar price and loan interest rates. With this, the cost of production is increasing. As a result, entrepreneurs are forced to increase the price of products. The price of other products is also increasing. As a result, the pressure on inflation is increasing. Food inflation is back in double digits. The effects of interest rates on loans and the value of the dollar will add further pressure on inflation. This time, pressure on inflation will increase from both sides. On the one hand, the value of money decreases due to the increase in the value of the dollar and on the other hand, the value of the dollar and the interest on loans increases due to the increase in the cost of production of goods.

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