‘No Quick Fix’ on interest rates

Staff Reporter :

Lowering interest rates cannot be viewed as a single, stand-alone policy decision, as abrupt adjustments may disrupt the broader economic balance, Finance Adviser Salehuddin Ahmed said on Saturday.

He cautioned that reducing rates without proper coordination across treasury bills, the banking system and market mechanisms could trigger unintended consequences for the wider economy. Ahmed made the remarks while speaking at an event in Dhaka.

The adviser noted that interest rates are often discussed as if quick remedies were available, but in practice, easing rates in one segment can create pressure elsewhere. Citing the recent decline in treasury bill yields, he said the effects would filter through to the market gradually.

However, he warned that increasing interest rates on treasury bills or savings instruments could draw deposits away from banks, heightening vulnerabilities within the banking sector.

Ahmed stressed that the core function of the banking industry is to channel funds between savers and borrowers. “Banks and non-bank financial institutions serve as intermediaries, and any weakness in this chain has negative implications for the entire economy,” he said.

He was speaking at the launch of the latest edition of the Banking Almanac at the Centre on Integrated Rural Development for Asia and the Pacific (CIRDAP) in Dhaka.

Although the Banking Almanac does not provide direct investment recommendations, it remains a valuable reference for assessing the sector’s health, Ahmed said. The publication includes key indicators such as authorised and paid-up capital, capital adequacy ratios, provisioning levels, retained earnings and credit-deposit ratios.

Reflecting on the condition of the banking sector, Ahmed said the situation was critical when he took office. However, recent assessments point to improvements in provisioning and lending performance at several banks—trends captured in the new edition of the Almanac.

On inflation, he said it cannot be contained through monetary policy alone. Sustainable control, he argued, requires stronger supply-side measures, effective market oversight and cooperation from both businesses and consumers.

Ahmed also urged journalists not to portray Bangladesh solely in negative terms, calling on them to highlight progress alongside constructive criticism, noting that the country has achieved significant gains despite ongoing challenges.