Dhaka, Bangladesh (BBN) – The central bank of Bangladesh has increased its policy interest rates by fifty basis points further aiming to curb inflationary pressures on the economy, officials said.

The interest rate on repurchase agreement (repo) was re-fixed at 7.25 percent on Sunday from 6.75 percent while the reverse repo rate was increased to 5.25 percent from 4.75 per cent.

The new policy interest rates come into effect from Monday, a central bank announcement said in Dhaka on Sunday.

“The central bank has increased the policy interest rates aiming to curb the recent upward trend of inflation,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka, adding that the BB has used its monetary instruments to manage the country’s overall macro-economy properly.

On June 14 last, the central bank raised the interest rate on repo to 6.75 percent from 6.25 percent while reverse repo interest was re-fixed at 4.75 percent from 4.25 percent, the BB data showed.

The BB’s latest move came against the backdrop of the increasing trend of inflation in the recent months because of the increase in prices of both food and non-food items.

The rate of annual average inflation as measured by the consumer price index (CPI) went up by 0.31 percentage point to 9.11 percent in July from 8.80 percent of the previous month while the point-to-point inflation rate rose to 10.96 percent from 10.17 percent.

The food price inflation rose to 13.40 per cent in July last from 12.51 per cent of the previous month while that of non-food items reached 6.46 per cent from 5.73 per cent on point-to-point basis, according to Bangladesh Bureau of Statistics (BBS) data.

“The central bank has increased the policy interest rates like repo in line with its latest monetary policy statement,” another BB official said, adding that it will help to contain inflationary expectation through increasing cost of borrowing funds in the coming months.

On July 27 this year, the BB unveiled its half-yearly monetary policy aiming to contain inflationary pressures through discouraging credit flow to unproductive sectors and for speculative purposes including real estates and investments in stock market beyond affordable limits.

The market operators, however, said that the BB’s latest move would influence the interest rates on both lending and deposit sides of the banks.

“The rising policy interest rate may discourage credit flow to the private sector, particularly less productive sectors, in the near future,” a senior treasury official of a commercial bank said without elaborating.

BBN/SSR/AD-05Sept11-8:39 am (BST)