Staff Reporter :
Bangladesh Bank has announced an increase in the policy or repo rate by 50 basis points, raising it to 9.50percent in an effort to address rising inflation.
The central bank issued a circular on Tuesday, stating that the new rate will come into effect from 25 September.
In accordance with the circular, the ceiling of the policy rate corridor for the Standing Lending Facility (SLF) has been increased to 11percent up from 10.50percent .
Concurrently, the floor for the Standing Deposit Facility (SDF) rate has been raised to 8percent from its previous level of 7.50percent .
This marks the fourth occasion this year that the key interest rate has been raised.
The increase signifies that commercial banks facing liquidity shortages will now encounter higher borrowing costs from Bangladesh Bank.
This move is anticipated to lead to an uptick in interest rates for consumers, potentially curbing spending and, in turn, aiding in the reduction of inflation.
This latest rate hike follows an announcement by Bangladesh Bank Governor Ahsan H. Mansur on Monday, wherein he stated that the policy rate would be raised this week and again next month.
The governor reiterated the central bank’s commitment to incrementally increasing the repo rate until inflation is brought down to a more manageable level.
He emphasised three key priorities for the regulator: containing inflation, stabilising the balance of payments, and addressing the exchange rate, all of which require immediate attention.
In a previous statement, Governor Mansur indicated that the repo rate could gradually rise to 10percent as part of ongoing efforts to mitigate inflationary pressures.
Just last month, under the interim regime, Bangladesh Bank had increased the policy rate by 50 basis points to 9percent .
This decision aligns with the bank’s contractionary monetary policy stance, aimed at countering inflation, which has been averaging around 10percent monthly.
The central bank anticipates that inflation will stabilise by March or April of the following year.
However, Bangladesh has faced significant inflation over the past two financial years, with the overall inflation rate in FY24 soaring to 9.73percent exceeding the government’s revised target of 7.5percent for the fiscal year.
This represents the highest annual inflation rate in 13 years, according to the Bangladesh Bureau of Statistics (BBS).
In comparison, the average inflation rate for the 2022-23 fiscal year stood at 9.02percent .
Moreover, inflation in August remained above 9percent for the 18th consecutive month.
While the monthly inflation rate in August 2024 eased to 10.49percent it followed a near thirteen-month high of 11.66percent in July.
During a roundtable discussion organised by Prothom Alo titled “Where Do We Want to See the Banking Sector?” held at Karwan Bazar, Dhaka, Governor Mansur stated that efforts are underway to resolve issues in the financial sector without resorting to printing money or selling dollars from the central bank’s reserves.
He expressed confidence that if these measures prove successful, inflation will decrease, significantly alleviating public frustration and suffering.
Previously, on 20 August this year, Governor Mansur asserted that the central bank would no longer support weak and troubled banks through money printing, noting that using printed money to sustain struggling banks would not provide a sustainable solution to the crisis.
During the roundtable discussion, Governor Mansur revealed that three task forces are being formed to reform the banking sector, with one already established.
Several measures have been implemented, including changes to the boards of some banks.
He highlighted that 10 to 11 weak banks are currently under regular supervision by Bangladesh Bank, which requires these banks to report on 20 specific issues daily.
“After implementing these measures, bank deposits have increased by Tk 80 billion.
This is a great relief. Once the liquidity crisis is resolved, we will proceed to the next steps,” remarked the governor.
Governor Mansur also noted that if the current trend in the dollar market continues, instability will diminish.
He pointed out that, for the first time, the exchange rate for remittances in dollars is higher than the rate in the open market, indicating stabilisation in the dollar market.
“Reducing inflation is my primary responsibility,” he emphasised. “Various measures are being undertaken to achieve this.
Monetary policy is already stringent, and steps are being taken to make it even stricter. While this may pose temporary challenges for businesses, inflation will eventually decline, benefiting the overall economy.”
In the meantime, Bangladesh Bank reported on Monday that the current account deficit of nine private sector banks has exceeded Tk 18,000 crore. Among these banks, National Bank has a current account deficit of over Tk 2,342 crore, First Security Islami Bank Tk 7,269 crore, Social Islami Bank Tk 3,394 crore, Union Bank Tk 2,209 crore, Commerce Bank Tk 380 crore, Global Islami Bank Tk 39 crore, Islami Bank Tk 2,201 crore, Padma Bank Tk 234 crore, and ICB Islami Bank Tk 95 crore.
Additionally, ten banks, including six private commercial ones, faced a provision shortfall of approximately Tk 31,549 crore at the end of June this year, according to the latest data from Bangladesh Bank.
These banks are National Bank, BASIC Bank, Agrani Bank, Rupali Bank, Bangladesh Commerce Bank, Dhaka Bank, Standard Bank, Bangladesh Development Bank, IFIC Bank, and Southeast Bank.