Bank interest rate jumps to 12% for Jan amid slow pvt sector credit
Lending rate was 11.22% in December
Banks' interest rate on loans has increased to nearly 12% for January due to the government's borrowing through treasury bills and bonds at higher interest rates to curb the mounting inflation.
Calculation of Six Months Moving Average Rate of Treasury Bill (SMART) is the benchmark for determining interest rates. In December, banks had the highest lending rate for borrowers 11.22%.
The managing director of a private bank explained that the government's high borrowing from banks is causing an increase in the treasury bill-bond rate.
However, he noted that due to pre-election uncertainty and economic slowdown, many businessmen are hesitant to take loans. An additional rise in interest rates on loans would further discourage lending.
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He said banks are also seeking higher rates in auctions due to the government's high demand for loans. If credit to the private sector decreases, it will impact investment, potentially leading to a crisis in new employment.
According to central bank data, private sector credit growth was 10.09% in October.
In July, the SMART was at 7.10%, and by September, it had risen to 7.20%. In October, an additional 0.20 basis points increase pushed it to 7.40%. in December it had risen to 8.14%.
A senior Bangladesh Bank official said, "The central bank is taking steps to control inflation by raising interest rates. The government is also borrowing at higher rates to absorb funds from the market."
On 27 December 2023, the government borrowed from 91-Day Treasury Bill Tk5,246.91 crore at 11.08%, and on 24 December, for 91-Day, 182-Day and 364-Day Treasury Bills, the government accepted Tk5,298 crore. The rates were from 10.95 to 11.50%.
However, the interest rate for 91-day treasury bills climbed from 7.21% on 12 September.
A central bank press statement last month said inflation would be brought down to 8% by December. However, the November inflation rate was over 9%.
Call money rates increasing
Banks transact in the interbank call money market to meet temporary liquidity needs. The overnight weighted average rate of the continuous call money market has been rising since early October.
Bangladesh Bank data show banks borrowed Tk1,940 core from the call money market on Thursday 28 December. This demand pushed the weighted average rate to a staggering 9.19%, marking the highest since 2013. For context, the entire year 2012 saw an average call money rate of 12.82%.
