Dhaka, Bangladesh (BBN)- The central bank of Bangladesh Bank on Wednesday increased its interest rate on reverse repurchase agreement (Repo) after nearly two years aiming to curb inflationary pressures on economy, officials said.

The central bank took the move after increasing the interest rate on Repo auction that was re-fixed at 8.75 per cent on September 17 last from 8.50 per cent of the previous level.

The interest rate on reverse Repo auction was re-fixed at 6.75 per cent on Wednesday from 6.50 per cent of the previous day for withdrawing fresh funds from the market.

A total of Tk 3.08 billion was withdrawn by the central bank through the reverse Repo auction on the day to mop up excess liquidity from the country’s banking system.

“We’ve increased the interest on reverse Repo auction aiming to curb inflationary pressures on economy through withdrawing excess liquidity from the market,” a senior official of the Bangladesh Bank (BB), the country’s central bank, told BBN in Dhaka.

Excess liquidity of the banking system stood at lower at BDT 93.94 billion as of end August last against Tk 129.88 billion as of end June 2008, according to the central bank statistics.

He also said the central bank revised its interest rate policy considering the country’s overall economic situation.

Senior officials of commercial banks, however, said the BB’s latest move indicates that the central bank is going back to its tightening monetary policy gradually from the existing accommodative one.

“The BB’s changing monetary stance may discourage credit flow to the private sector in the near future,” a senior treasury official of a private commercial bank told the FE.

Credit growth to the private sector has recorded a significant over 26 per cent rise in the first two months of the current fiscal against that of the previous year.

Credit to the private sector rose by 26.14 per cent to BDT 404.21 billion in July-August period of fiscal 2008-09 from 15.76 per cent to BDT 210.51 billion of the previous fiscal, the BB’s data showed.

Besides, Bangladesh taka (BDT) will be costly in the near future due to increase of interest rates on both Repo and reverse Repo auctions by the central bank, the treasury official added.

The BB maintained an accommodative monetary policy for nearly one year aiming to achieve maximum economic growth through expansion of credit to the productive sectors while keeping inflationary pressures under control.

Meanwhile, Bangladesh’s Consumers Price Index (CPI) inflation rose to 10.06 per cent in September on an annual average basis from 10.01 per cent of the previous month mainly due to increase in prices of food items.

The food price inflation rose to 12.63 per cent in the month of September from 12.56 per cent in August on an average while that of non-food items remained unchanged at 6.01 per cent, according to the Bangladesh Bureau of Statistics (BBS) data.

On the other hand, the inflation rate slightly moved up to 10.19 per cent on a point-to-point basis in September from 10.11 per cent of the previous month because of higher prices of non-food items.

BBN/SI/SS/AD-20November08-8:47 AM (BST)