The central bank reduced the rate by 100 basis points to 4 percent in the monetary policy announced on Wednesday.
The move aims to “rationalise” the rate with the current interest rate regime, the central bank said.
It also reduced the repurchase rate by 50 basis points to 4.75 percent, lowering borrowing costs for a third time this year to boost money flow into the pandemic-hit economy.
All these changes will be in effect soon as part of Bangladesh Bank’s expansionary monetary policy stance to support the preparedness for additional demand for funds amid the crisis.
The bank rate has remained unchanged at 5 percent since 2003 though the central bank changed different policy rates.
The cut in the rate will help the banks borrow from the central bank to implement over Tk 1 trillion coronavirus stimulus packages announced by the government.
Researcher Ahsan H Mansur has welcomed the decision saying it was “inevitable” during a crisis such as the coronavirus pandemic.
“This will help implement the stimulus packages, increase investment and create jobs,” he said.
The prime objectives of the monetary policy stance for FY21 are to revive the economy from ravages of the pandemic and rehabilitate the production capacity, including the restoration of the normal livelihoods while maintaining dual goals of price stability and quality growth, according to the Monetary Policy Statement.
“There are several risk factors to the attainment of FY21 monetary policy programme objectives mainly arising from the ongoing COVID-19 pandemic, seasonal floods, and international sluggish economic and volatile price situations,” Bangladesh Bank said.
The monetary policy for the FY21 has been set on the basis the government targets of 8.2 percent real GDP growth and 5.4 percent average general CPI inflation ceiling declared in the national budget.
The central bank has already taken several policy measures to help generate employment opportunities in agriculture, industry and services sectors in order to quickly recover the economic losses inflicted by the COVID-19 pandemic.
These include reducing the cash reserve ratio for banking institutions, raising the advance-deposit ratio (ADR) and allowing banks to purchase excess government securities holdings.
It also allocated Tk 552.5 billion for different refinancing schemes, including the recent formation of a credit guarantee scheme to support cottage, micro and small enterprises that lack adequate assets to pledge for bank loans.