Banks’ interest on lending rate close to 11pc

Business Report :
The lending rate cap in banks reached nearly 11% in November, up from 10.7% in October.

The interest rate increased after the Bangladesh Bank on October 5 raised the policy rate by 75 basis points to 7.25% from 6.5%, to address mounting inflationary pressures in the country.

The six-month moving average interest rate (Smart) of 182-day treasury bills increased to 7.43% in November from 7.20% in October.

On October 5, the Bangladesh Bank raised the interest rate corridor margin to 3.5% from 3% and allowed banks to add the margin with Smart.

Given the SMART of 7.43%, the highest limit for bank lending rate stands at 10.93% for November.

Criticisms from various quarters and recommendations by the International Monetary Fund (IMF) prompted the central bank to take the step.

On June 18, the BB in its monetary policy statement adopted a new interest rate regime, removing the previously imposed 9% lending rate ceiling.

Under the new framework, the lending rate for banks is determined by incorporating a 3.5% corridor with six-month moving average interest rate (Smart) of 182-day treasury bills.

Bangladesh Bank had imposed a 9% ceiling on lending rate in April 2020. However, the restriction was lifted on July 1 earlier this year.

Although the central bank stated that lending rates would be determined by market forces, the reference rate with a margin would restrict banks from lending beyond the interest rate margin.

The interbank dollar price increased to Tk111 each on Wednesday, while the rate was about Tk120 each on the open market.

The gross foreign exchange reserve in Bangladesh, according to International Monetary Fund guidelines, dropped to $19.5 billion on November 8 from $23.25 billion on August 31.

The Bangladesh Bank follows the IMF’s BPM6 for calculating gross and net international reserves.