Bangladesh bars banks from lowering deposit rate below inflation

Bangladesh Bank has tagged the interest or profit offered on bank deposits with inflation, meaning banks will not be allowed to lower the interest below the rate of inflation.

In a Sunday notice, the central bank set the new ceiling and directed all banks to immediately implement the provision for personal deposits and pension-related funds.

The government is aiming to keep the average inflation rate at 5.3 percent in fiscal 2021-22. Accordingly, the rate of interest on deposits cannot drop below that mark.

Noting a 'gradual decline' in deposit interest rates in the banking sector, the central bank said the purchasing power of depositors has diminished due to the payment of interest at a rate lower than the inflation rate.

As a lot of people are dependent on the interest on their deposits, low rates will discourage public savings and instead lead to investment in risky as well as unproductive sectors, it added.

According to the Bangladesh Bureau of Statistics (BBS), the inflation rate was 5.64 percent in June 2021, while the average inflation rate for FY21 was 5.56 percent.

Meanwhile, the average rate of interest on deposits was 4.1 in June, data released by Bangladesh Bank showed.