Central Bank raises lending rate to 11.18%

 
Bangladesh Bank (BB) has increased its key policy rate by 50 basis points to 7.75% to control inflation by making borrowing more expensive for commercial banks and the private sector.

With the new hike, the policy rate saw an increase by 125 basis points in less than two months as the central bank increased it by 75 basis points in October. The policy rate, or repo rate, is the interest at which the central bank lends to commercial banks.

Also, the interest margin with the SMART (six-month moving average rate of treasury bills), which is the reference lending rate, has been hiked by 25 basis points to 3.75%, leading to a calculated lending rate of 11.18%, meaning that loans will be costlier, and the costs of doing business for the private sector will shoot up. The new rates came into effect from yesterday, according to a Bangladesh Bank release issued on Sunday.

The decisions were made at the inaugural meeting of the Monetary Policy Committee, aiming to reduce inflation to 8% by December and 6% by June next year.

The US Federal Reserve hiked rate for 11 times since March last year and neighbouring India went for a massive 250 basis points at one go in May last year to cool surging prices. Both economies have now chosen to keep their rates unchanged at high levels after significantly containing inflation that reached their peaks in decades for most western economies.

A central bank policymaking official present at the monetary policy meeting told journalists that after the policy rate hike, it takes up to a few months for its impact to be visible. The policy rate hike in early October is gradually beginning to show its impact, he said.

"The policy rate which was increased on Sunday, we need to wait until January or February of next year to fully observe its impact on the economy. We anticipate that two significant policy rate hikes will bring inflation under control," the central banker said.