Fourth policy rate hike this year takes it to 9.50%
The new rate will come into effect from 25 September, the central bank said in a circular issued today (24 September)
The Bangladesh Bank has increased the policy rate by 50 basis points to 9.50% in an effort to combat high inflation.
The new rate will come into effect from 25 September, the central bank said in a circular issued today (24 September).
Letters have been sent to managing directors of banks and non-bank financial institutions to this end.
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This marks the fourth time that the key interest rate has been raised this year.
The latest hike comes a day after Bangladesh Bank Governor Ahsan H Mansur announced that the policy rate would be increased this week and one more time next month.
"A contractionary monetary policy will be followed as long as inflation does not come under control. The policy rate will be hiked once next week and again next month," he told journalists during a briefing today.
"I am optimistic that inflation will stabilise by March or April," he had said. Earlier on 25 August, the central bank increased the policy rate by 50 basis points to 9% in an effort to combat high inflation, marking the third time that the key interest rate has been raised this year.
Mansur had previously announced that the policy, or repo rate, would first rise to 9% and then potentially to 10% in phases.
"The central bank is consistently following a contractionary monetary policy as inflation has hovered around 10% on a monthly average. The central bank's aim now is to control inflation for which the policy rate will be increased along with other necessary measures to control inflation," a senior official of the central bank told The Business Standard on condition of anonymity.
According to bankers, the policy rate hike means banks under liquidity crunch will now have to pay more interest for loans taken from the Bangladesh Bank. It would also lead to an increase in interest rates at the customer level. With rising interest rates, spending is expected to decline, which would ultimately reduce inflation.
The country's inflation dropped to 10.49% in August from the record 11.66% in July, marking a 1.17 percentage point decline – the largest decline since 2013, according to data from the Bangladesh Bureau of Statistics.
The fall was primarily driven by the decrease in prices of essential foods, the data shows.
