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New monetary policy announced lifting 9% lending rate cap to curb inflation

Bangladesh Bank has announced a contractionary monetary policy withdrawing the single-digit lending rate cap to contain rising inflation.

BB Governor Abdur Rouf Talukder announced the new monetary policy for the first half (July-December) of FY2024 at a press conference held at the central bank on Sunday (June 18, 2023).

The central bank lifted the bank lending rate ceiling of the current 9 per cent by introducing a benchmark reference rate. Based on this, the banks can fix their lending rates.

“This move aims to enhance competitiveness in the banking sector and foster a favorable lending environment for businesses and individuals. The reference lending rate, known as the ‘SMART’ (six-month moving average rate of Treasury bill), will be announced monthly through the BB website, with a margin applied for banks and non-bank financial institutions (NBFIs),” he added.

Rouf Talukder said BB intends to introduce a market-driven reference lending rate for all types of bank loans, replacing the previously imposed lending rate cap.

“This monetary policy focuses more on containing inflation, and the introduction of a single currency exchange rate,” he said.

The new lending rate formula includes a reference rate, which is calculated as the six-month moving average rate of treasury bills, with a 3% margin for banks and a 5% margin for non-bank financial institutions.

Currently, the rate of the 6-month treasury bills stands at 7.10%, so the maximum lending rate for bank loans will be 10.10% and for NBFIs 12.10%.

As part of this tight monetary policy stance, BB has increased the policy rate, also known as the repo rate, by 50 basis points to 6.50%, and the reverse repo rate by 25 basis points to 4.50%, effective from 1st July.

As part of this tight monetary policy stance, BB has increased the policy rate, also known as the repo rate, by 50 basis points to 6.50%, and the reverse repo rate by 25 basis points to 4.50%, effective from 1st July.

Also, CMSMEs (Cottage, Micro, Small, and Medium Enterprises have an additional fee of up to 1% to cover supervision costs.

The chief of BFIU, deputy governors, chief economist, executive director of the Research Department, and concerned officials of Bangladesh Bank were present at the press conference.