Bangladesh Bank is considering raising the policy interest rate again as the nation grapples with persistently high inflation and increasing living costs.
“The central bank typically increases the repo rate—considered the policy interest rate—to curb high inflation. An announcement may be made in the upcoming monetary policy for the January-June period of the current fiscal year,” said a Bangladesh Bank assistant director, speaking on condition of anonymity.
The official added that the repo rate, or the rate at which commercial banks borrow from the central bank by pledging treasury bills, is likely to be raised from 10 percent to 10.50 percent.
This potential hike has sparked concerns among business leaders. Executive President of the Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA), Mohammad Hatem, warned that higher interest rates will increase borrowing costs at the consumer level, further driving up the cost of business and commerce.
Hatem also criticized the timing of the decision, pointing out that the government recently raised VAT and other taxes on over 100 goods and services, compounding the challenges posed by high inflation.
Despite the possible increase in the policy interest rate, the interest rate on loans for government officials and bankers is expected to remain fixed at 4 percent, a point that has drawn criticism from stakeholders who claim it creates inequality in the credit market.
Economic analysts have noted that the persistent dollar crisis and Bangladesh Bank's contractionary monetary policy have significantly hampered private sector investment. Private sector credit growth slowed to 7.66 percent in November, one of the lowest rates in recent years.
Inflation remains a key concern, with average inflation hitting 10.34 percent in December. This marks over two and a half years of inflation hovering around 10 percent. The government has set a target of bringing inflation down to 7.50 percent by the end of this fiscal year.
Analysts warn that recent increases in customs duties and taxes on over 100 products, along with the dearness allowance for government employees, could push inflation even higher in the coming months.
