BM Report:
In a move to combat rising inflation, the central bank of the country, Bangladesh Bank (BB), has announced a 50 basis point increase in the repo rate, bringing it to 7.75 percent. This decision, effective from Monday, was reached by the monetary policy committee of the central bank during a meeting held at its headquarters in Dhaka, according to a notification issued on Sunday.
The repo rate, also known as the policy rate, is the interest rate at which BB lends money to commercial banks and financial institutions. By raising the repo rate, BB aims to make borrowing more expensive, thereby reducing demand in the economy and ultimately bringing inflation under control.
In addition to raising the repo rate, BB has also adjusted the ceilings for the standing lending facility (SLF) rate and the standing deposit facility (SDF) rate. The SLF rate, the maximum interest rate at which BB lends money to commercial banks, has been increased to 9.75 percent from 9.25 percent. Conversely, the SDF rate, the minimum interest rate at which BB borrows money from commercial banks, has been raised to 5.75 percent from 5.25 percent.
Furthermore, BB has hiked the reference lending rate, also known as SMART (six-month moving average rate of Treasury bill), by 25 basis points for all sectors. This means that interest rates on loans across the economy are likely to increase.
BB’s decision to tighten monetary policy comes as inflation in Bangladesh continues to rise. The latest data from the Bangladesh Bureau of Statistics (BBS) shows that inflation reached 9.1 percent in September 2023, up from 8.5 percent in August 2023. The rise in inflation is attributed to various factors, including the global supply chain disruptions caused by the COVID-19 pandemic and the Russia-Ukraine war.
BB’s move to raise interest rates is aimed at taming inflation expectations and preventing it from spiraling out of control. However, this policy tightening could also have a dampening effect on economic growth. BB will need to carefully balance the need to control inflation with the need to support economic activity.
