Dhaka, Bangladesh (BBN) – The country’s commercial banks are set to raise lending rates on industrial loans and import financing of eight essential food items from Sunday aiming to minimize their cost of funds, bankers said on Sunday.

Under the latest move, the lending rate on food items will be re-fixed at a maximum of 17 percent, instead of the existing 12 percent while term loans to large and medium-scale industries will be increased to a maximum of 16 percent, in place of existing 13 percent.

“We’ve decided to re-fix the lending rates on industrial term loans and food items following the lifting of lending rate cap by the central bank for all sectors and items,” a senior official of a leading private commercial bank (PCB) said, adding that some banks would issue circulars in this connection Sunday after its approval by their board of directors.

On January 04 last, the central bank withdrew the cap on lending rate for all sectors and items, barring only two — agriculture and export — to facilitate the country’s overall economic growth through boosting investment in different fields.

Besides, the lending rate ceiling on import financing for eight essential food items was earlier withdrawn from the same day (January 4) through the latest circular relating to fixation of lending rates.

The essentials are: edible oil, gram, pulses, peas, onions, date, fruits and sugar.

The Bangladesh Bank (BB) earlier asked the commercial banks to keep the lending rate on import financing for eight essential food items at a maximum of 12 per cent to help ensure smooth supply of the items to the local market.

“The central bank will strengthen its monitoring to avoid any irrational behaviour of the banks, relating to fixation on interest rates,” an executive director of the BB told BBN in Dhaka, adding that the banks are now free to fix their lending rates, barring a few exceptions.

In 1989, the BB introduced a flexible interest rate regime through issuance of a circular in line with the Financial Sector Reforms Program (FSRP).

Under the FSRP, the banks are free to charge or fix their deposit and lending rates, excepting the lending rate on export credits.

BBN/SSR/AD-08Jan12-1:47 am (BST)