Dhaka, Bangladesh (BBN)– The central bank of Bangladesh has slashed maximum ceiling on agricultural credit by 1.0 percentage points considering the declining trend of both interest rates on lending and deposits, officials said.
Under the revised provisions, the banks are allowed to charge maximum 09 per cent interest rate on agriculture credit instead of the existing 10 per cent.
The revised interest rate on agriculture credit will come into effect from July 1, 2017, according to a circular, issued by the Bangladesh Bank (BB) on Thursday.
“We’ve reduced the interest on farm credit aiming to facilitate agriculture activities across the country,” a BB senior official told BBN while explaining the objective of the latest move.
Earlier on June 14 last year, the BB slashed maximum ceiling on agricultural credit by 1.0 percentage points to 10 per cent from 11 per cent on the same ground.
Besides, the central bank slashed maximum ceiling on agricultural credit by 2.0 percentage points to 11 per cent from 13 per cent on December 21, 2014 on the same ground.
Earlier on April 19, 2009 the central bank asked the banks to enforce the ceiling on lending rate at 13 per cent in five specific areas to help mitigate the impact of the then global economic meltdown.
The five areas for which a ceiling on lending rate was fixed at the time were: agriculture, term loan and working capital to large and medium-scale industries, housing, and trade financing.
On January 04, 2012 the central bank withdrew the cap on lending rate in all sectors and items barring only two – agriculture and export – to facilitate the country’s overall economic growth through boosting investment in different sectors.
Credits at a reduced rate of interest — 7.0 per cent — are being provided to all areas of exports since January 2004, the central banker said, adding that it will remain unchanged.
With a view to establishing a market-oriented financial system under the Financial Sector Reforms Programme (FSRP), the administered interest rate regime was earlier abolished giving the banks full freedom for selection and management of their credit portfolios.
The central bank of Bangladesh introduced in 1989 a flexible interest rate regime through issuance of a circular in line with the FSRP.
Under the FSRP, the banks are free to charge or fix their deposit and lending rates excepting the rate of interest on export credits.