BB unveils new monetary policy
-No cap for credit card loans
-Interest on consumer loans could be increased more 3pc
-Removal of fixed interest rate on other loans under consideration
Ibrahim Khalil Jewel: Bangladesh Bank has removed the fixed interest rate on bank deposits. From now on, banks and financial institutions will be able to set their own interest rates on deposits. This announcement was made in the monetary policy announced for the last six months of the current financial year 2022-23 yesterday (Sunday).
According to the new monetary policy, considering the current market conditions, the minimum interest rate on deposits has been completely withdrawn. In addition, the new monetary policy has also announced an increase in consumer loan interest rates.
Bangladesh Bank has said that the interest rate can be increased up to 3 percent in the case of consumer loans. At present, the interest rate of all types of bank loans is fixed at 9 percent. Now the banks can increase the interest rate of consumer loans up to 12 percent. As a result, banks will now be able to increase interest rates on consumer loans.
However, no specific announcement has been made to increase the interest rate in the case of industrial loans and other loans. Bangladesh Bank said, the removal of fixed interest rates on other loans will be under consideration.
In the new monetary policy, Bangladesh Bank says that opening the deposit interest rate and slightly relaxing the loan interest rate will help increase the deposit interest rate.
Earlier in August 2021, Bangladesh Bank fixed the minimum interest rate on deposits. At that time, Bangladesh Bank’s instructions said that the interest on term deposits of three months and
above cannot be less than the average inflation rate of three months.
In April 2020, the deposit rate was brought down to even 2.5 percent after the loan rate was fixed at 9 percent.
At present, where inflation has risen in the country, banks have to increase the interest rates on deposits. But as the loan interest rate is fixed, the banks have to face difficulties in adjusting the loan and deposit interest. For this, the banks have been demanding to withdraw interest rates on loans and deposits.
In its ‘cautiously accommodative’Monetary Policy Statement (MPS), BB also says that monetary and credit programs for H2 of FY23 will pursue a cautiously accommodative policy stance to contain inflationary and exchange rate pressures, support desired economic growth, ensuring the necessary flow of funds to the economy’s productive and employment generating activities.
In the new policy, private sector credit growth was kept unchanged to 14.1 percent while the public credit growth ceiling increased to 37.7 percent for June from the previous ceiling of 36 percent.
While unveiling the statement, BB Governor AbdurRoufTalukdersaid that the world economy has been facing a complex situation owing to the war in Ukraine, zero-Covid policy in China, energy shortages in Europe, protectionism in the United States and skyrocketing debt burden in developing countries.
“The new wave of Covid-19 in North-East Asia, particularly in China, Japan, South Korea, Taiwan, and Russia, is also a great concern for the world economy. Bangladesh is no exception, facing inflationary, liquidity, and exchange rate pressures during the last few months, mainly due to external shocks. The high NPL ratio and the issue of good governance in banks and NBFIs are also matter of concern for the financial stability of the economy,” he added.
To overcome these challenges, he said, BB has already taken a series of policy initiatives, which include raising the policy interest rate amid quantitative tightening through the selling of a huge amount of dollars in the market; continuing the repo and liquidity support facilities for banks and NBFIs, and extending the refinance facilities to neutralize the tight liquidity condition; discouraging imports of luxury and non-essential commodities; enhancing the facilities to improve the export receipts and inward remittances; and engaging with concerned commercial banks and NBFIs to deal with NPLs and good governance issues.
Talukder, however, said BB has decided to increase its policy rates by 25 basis points, the repo rate to 6.00 percent from 5.75 percent, and the reverse repo rate to 4.25 percent from 4.00 percent as a part of its current policy stance.
“BB emphasizes raising production and employment opportunities by providing necessary funds to various productive sectors of the economy. BB’s monetary policy also seeks to promote import-substituting economic activities and dissuade imports of non-essential commodities to reduce the exchange rate pressure, protect foreign exchange reserves and control imported inflation,” he mentioned.
Considering the current market conditions, he informed, the lending rate cap for consumers’ credit has been relaxed to vary up to 3.00 percentage points, along with the complete removal of the deposit floor rate.
There is no cap for credit card loans, he added.
In the presence of a suitable economic condition, he said, the removal of the remaining lending rate cap will be considered.
He said BB is taking necessary measures to gradually move towards a market-based, flexible, and unified exchange rate regime (within a 2.00 percent variation) by the end of this fiscal year.
Talukder said the central bank is taking necessary measures to gradually move towards a market-based, flexible and unified exchange rate regime by the end of the ongoing fiscal year.
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