After maintaining a 9% cap on lending rates for over three years, the restriction was lifted in July 2023, triggering a steady rise in borrowing costs.
The pace of this increase accelerated following the appointment of the new central bank governor in August last year.
With multiple hikes in the policy rate, lending rates have now reached nearly 16% in certain cases, significantly escalating business costs.
Companies, struggling to absorb these additional expenses, are passing them on to consumers, further exacerbating inflation.
Businesses with substantial debt burdens are facing mounting financial pressure.
A prudent debt-to-equity ratio is considered to be one times equity or lower, while global rating agencies deem up to 1.5 times equity to be manageable.
Businesses have acknowledged the adverse impact of rising interest rates on profitability.
They argued that while rate hikes are intended to curb inflation, the measure often has the opposite effect in economies like Bangladesh.
Unlike developed nations, where consumers rely on credit for purchases, businesses in Bangladesh predominantly finance operations through bank loans.
According to industry insiders, higher interest rates would inevitably push up production costs, which would then be passed on to consumers, fuelling inflation.
They also highlighted that increasing lending rates do not only impact the private sector but also drive up the government’s debt servicing costs, which, in turn, are indirectly borne by the public.
The current economic instability, driven by rising interest rates, is unlikely to yield long-term benefits, they cautioned, stressing the need for a more robust equity and bond market to reduce dependence on bank loans.
Many have pointed to the dual burden of rising interest rates and a volatile foreign exchange market and noted that consumers’ purchasing power has declined sharply, and investment prospects have dimmed due to surging borrowing costs.
Until interest rates stabilise, fresh investments will remain elusive, businessmen warned, adding that without domestic investor confidence, foreign investment will also remain sluggish.
They again reiterated the urgency of lowering interest rates to revive investment and job creation, expressing hope that the economic landscape would improve in the near future.
