Bangladesh Bank has raised its key interest rate, or repurchase agreement rate, by 25 basis points to 6 per cent as part of its efforts to contain inflationary pressure.
The decision came on Sunday, three-and-a-half months after the previous hike on Sept 29, when it raised the repo rate by 25 basis points to 5.75 per cent, according to bdnews24.com.
The repurchase agreement rate, also known as the overnight repo rate, is the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds.
The reverse repo rate was also increased from 4 per cent to 4.25 per cent as part of a monetary policy stance the central bank called ‘cautiously accommodative’.
The stance aims to reduce pressure on inflation and the exchange rate, support economic growth and ensure the necessary flow of funds to productive and employment-generating activities, the central bank said.
The bank is also relaxing the lending rate cap for consumer credit, allowing it to vary up to 3 per cent while removing the specific deposit floor rate. This is part of its plan to gradually move towards a market-based, flexible, and unified exchange rate regime within a 2 per cent variation by the end of this fiscal year.
The central bank said that the near-term outlook for the economy “seems quite stable”, but depends largely on external issues such as the length and intensity of the Russia-Ukraine war, interest rate hikes by the US Federal Reserve, and the possible re-emergence of COVID-19 and its severity in China.
If these situations improve, they will expedite Bangladesh’s economic gains, it added.
Bangladesh does, however, have the resilience to remain insulated from adverse consequences of these issues, according to the central bank.
Central banks across the globe have been increasing lending rates to rein in inflation amid the Russia-Ukraine war.
Inflation has eased slowly in Bangladesh after a notable spike last year. The country posted an inflation rate of 8.71 per cent in December after a 8.85 per cent increase in the preceding month.
That means the Consumer Price Index fell for the fourth straight month after hitting 9.52 per cent in August, the highest in a decade.
