Bangladesh raises bank loan interest ceiling to 12.43%

Bangladesh Bank increased the benchmark rate for bank loans by 54 basis points 8.68 percent, the biggest jump in seven months

Bangladesh Bank has raised the benchmark interest rate for bank loans by 54 basis points, the biggest increase in seven months.

The rate, derived from the Six-month Moving Average of Rate of Treasury bill or SMART method, will be 8.68 percent in February, with banks allowed to add 3.75 percentage points on top of it for consumer loans.

This means customers could be charged a maximum of 12.43 percent interest on loans, up from 11.89 percent last month.

Previously, the biggest one-month surge in the SMART rate was 42 basis points, reaching 8.14 percent in December.

The uptick follows an increase in the key policy rate, known as repo rate, by 25 basis points to 6 percent in a bid to contain inflation.

The central bank introduced the SMART rate in July 2023 to modernise monetary policy, curb inflation, and transition to a market-based interest rate system in line with the conditions set by the IMF. The rate is announced at the beginning of every month.