Dhaka, Bangladesh (BBN) - The central bank of Bangladesh has withdrawn the cap on lending rate for all sectors and items barring only two -- agriculture and export, officials said on Wednesday.
"We've withdrawn the cap on rates of lending to some sectors including industrial term loan for the second time to facilitate industrial development," a senior official of the Bangladesh Bank (BB), the country’s central bank, said.
"Now banks are free to fix their lending rates with few exceptions only," another senior BB official said, adding that the central bank has taken the move to facilitate the country's overall economic growth through boosting investment in different fields,
The BB issued a circular in this connection on Wednesday and asked the chief executives and managing directors of all 47 scheduled banks to follow the latest instructions on lending rate ceiling in specific areas.
On April 19, 2009 the central bank asked the commercial 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 March 9 last, the central bank withdrew the cap on lending rate in all sectors barring two -- agriculture and industrial term loan -- for the first time after nearly two years back.
Besides, the lending rate ceiling on import financing for eight essential food items was withdrawn from Wednesday through the latest circular relating to fixation of interest rate.
The central bank earlier asked the commercial banks to keep the lending rate on import financing for eight essential food items at maximum 12 per cent to help ensure smooth supply of the items to the local market.
The essentials are: edible oil, gram, pulses, peas, onion, date, fruits and sugar.
With a view to establishing a market-oriented financial system under the Financial Sector Reforms Program (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 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.
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.
BBN/SSR/AD-05Jan12-2:04 am (BST)