Bank loan interest ceiling raised to 11.18%

The banks can now add 3.75 percentage points to the reference rate in place of 3.50 percentage points

Bangladesh Bank has raised the ceiling of interest on bank loans by 25 basis points after making it costlier for banks to borrow in a bid to tame rising inflation.

The banks can now add 3.75 percentage points to the reference rate – Six months Moving Average of Rate of Treasury bill or SMART – in place of 3.50 percentage points, according to a central bank notice issued on Monday.

It means they can charge up to 11.18 percent interest on loans as the SMART was 7.43 percent at the end of October.

For pre-shipment exports, agriculture and rural loans, the ceiling will be 2.75 percentage points instead of 2.50 percentage points on top of the reference rate.

The Bangladesh Bank on Sunday raised the key policy rate, known as repo rate, by 50 basis points to 7.75 percent, targeting to contain inflation within 8 percent by December and 6 percent by June next year.

The central bank raised the repo rate for the last time by 75 basis points, the highest single jump in 12 years, to 7.25 percent on Sept 29.

The latest is the third hike in around five months, as the Bangladesh Bank has maintained contractionary monetary policy since June amid inflation rising at a near double-digit rate.

It hopes that the downward trend of prices in the global market and availability of winter vegetables will also help control inflation.