BB plans to lift 9pc lending rate cap

News Desk :
Bangladesh Bank plans to remove the 9 percent cap on lending rates amid ongoing talks with the International Monetary Fund and criticism from economists.
The central bank reviews ways to decide whether the interest rate can be increased by sector rather than dissolving the 9 percent ceiling altogether, reports bdnews24.com
“A review is underway. Bangladesh Bank reviewed the situation earlier as well, but it has not yet made a decision,” said central bank spokesman Abul Kalam Azad.
Higher-ups in the central bank have also said that they are mulling the possibility of keeping the 9 percent interest rate cap in the manufacturing sector while dissolving it in other sectors. In that case, initially, SME and personal loans, which are the loans given against consumer products, may see the rate ceiling go in the first phase.
Bangladesh Bank is also focusing on the impact of dissolving the interest rate ceiling on the economy.
Economic indicators have gone through significant changes after the loan interest rate was capped at 9 percent in April 2020.
On different occasions, the central bank said the interest rate was capped in a bid to reduce loan defaults and provide loans to traders at a lower interest rate.
The Bangladesh Institute of Bank Management also recommended ending the interest rate ceiling in a keynote paper presented at a conference on Aug 27.
The monetary policy plans had outlined ways of increasing the currency supply to the market, the BIBM keynote paper said. But as the credit flow slows down due to inflation, the banks will receive fewer repayments and the defaults may pile up further.
“Once the interest rate cap is removed, the entrepreneurs will face a higher cost. In addition, banks will have to bear increased fund management costs. We want to provide loans to the entrepreneurs at a lower cost so the production cost drops,” Bangladesh Bank Governor Abdur Rouf Talukder had told the media at the BIBM event..