Staff Reporter :
When interest rates fall, demand for loans increases, boosting credit flow to the private sector and revitalizing economic activity. Conversely, high interest rates raise production costs, undermining competitiveness in both domestic and international markets.
Lower interest rates reduce production costs, allowing firms to strengthen their market positions. New investments spur the creation of new industries and businesses or the expansion of existing ones, generating large-scale employment opportunities.
Small and medium enterprises (SMEs), in particular, can expand rapidly and create jobs if they have access to low-interest loans. However, during periods of high inflation, there is little scope to lower interest rates too much, as doing so can fuel further inflation. Therefore, maintaining a balanced bank interest rate has become crucial to ensure overall economic stability.
There are allegations that commercial banks are raising both deposit and lending rates in unison. Currently, interest rates in Bangladesh exceed 14 percent. In a competitive market, SMEs typically earn profits of only 10 to 11 percent. Under such conditions, such high borrowing costs are by no means business-friendly. Competing globally with loans at such high rates is extremely difficult.
Recently, a high-level business delegation from the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) met with Bangladesh Bank Governor Dr. Ahsan H. Mansur. In the meeting, business leaders stressed that to maintain competitiveness in the global economy, stimulate investment, and keep inflation under control, interest rates must gradually be brought down to single digits.
Economist and Policy Exchange of Bangladesh Chairman M. Masrur Riaz and FBCCI vice-presidential candidate Sakif Shameem, Managing Director of Labaid Cancer Hospital & Super Speciality Centre, also emphasized the need to reduce interest rates to boost credit flow to the private sector.
“Entrepreneurs are calling for lower interest rates, but inflation control is also a factor,” he said. “A rational interest rate must be determined. In addition, ensuring uninterrupted energy supply to industries and stabilizing the industrial environment could increase exports by 5-7 billion dollars, positively affecting the overall economy.”
Business leader Sakif Shameem stated that to attract new investment, bank loan interest rates must be reduced – otherwise both domestic and foreign investment could collapse. “Interest rates must be lowered to break the stagnation in investment,” he said. Priority sectors such as agriculture, SMEs, health, education, renewable energy, housing, garments, and women entrepreneurship should receive low-interest loans on easy terms.
He added that many entrepreneurs established industries based on loans with interest below 9 percent, but now they are paying 14-15 percent. If policy rates continue to rise, borrowing costs will climb further, creating widespread distress. Bangladesh will lose competitiveness in global markets, and investors who borrowed at high rates risk becoming defaulters under the debt burden.
Sakif Shameem further stated that the Bangladeshi economy is currently going through a very difficult phase. On one hand, inflation has driven up the cost of daily essentials, making life increasingly expensive for ordinary people; on the other, the central bank has raised interest rates to control inflation. These high rates have sharply reduced new investment in industry and commerce, stalling job creation. Consequently, economic growth and momentum are both slowing down.
The biggest challenge for policymakers, he said, is to keep the economy active by determining a business-friendly, rational, and balanced interest rate.
Recent data shows that domestic and foreign investment trends are far from encouraging. Private sector credit growth has plunged to the lowest level in years, indicating that new industries and business expansions have nearly stopped. Meanwhile, commodity prices remain uncontrolled. Despite the central bank’s sharp interest rate hikes, inflation has not decreased as expected.
