Dhaka, Bangladesh (BBN) – The central bank of Bangladesh increased its policy interest rate by 1.0 percentage point aiming to curb inflationary pressures on economy.
The interest rate on repurchase agreement, generally known as repo, was re-fixed at 5.5 percent on Thursday from 4.5 percent while the reverse repo rate was increased to 3.5 percent from 2.50 percent.
The central bank issued a circular on Thursday in this connection and asked all banks and non-banking financial institutions to maintain the new policy interest rates from Thursday.
“The central bank has increased the policy interest rates in line with the existing monetary policy,” a senior official of the Bangladesh Bank (BB) said, adding that the BB has taken the latest move considering the country’s overall economic situation.
Policy interest rates like repo and reserve repo, cash reserve requirement and statutory liquidity ratio will be adjusted as and when warranted by unfolding trends of growth in broad money and domestic credit, according to the monetary policy, resealed on July 19 this year.
The BB official also said the central bank has increased the interest on repo to reduce dependence on borrowing of the commercial banks and non-banking financial institutions from the BB.
On 13 October 2009, the central bank slashed interest rate on repo to 4.50 percent from 8.50 per cent while reserve repo interest was re-fixed to 2.50 percent from 6.50 percent.
The market operators, however, said that the BB’s latest move would influence in the interest rates on both lending and deposit in the banking system.
“The rising police interest rate may discourage credit flow to the private sector in the near future,” a senior treasury official of a foreign commercial bank said.
BBN/SI/AD-20Aug10-2:53 pm (BST)