Bangladesh raises repo rate by 25 basis points to 5.75% in a surprise move

The decision to raise the rate to 5.75% comes just three months after the previous attempt to use the measure to tamp down inflation

Published : 29 Sept 2022, 12:14 PM
Updated : 29 Sept 2022, 12:14 PM

In a surprise move, Bangladesh Bank has raised its key interest rate, or repurchase agreement rate, by 25 basis points to 5.75 percent as part of its efforts to control consumer prices.

The decision comes three months after the previous hike on Jun 30, when it raised the repo rate by 50 basis points to 5.50 percent.

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 repo rate hike comes a day after the central bank raised the interest on short-term borrowing against foreign currency by 50 basis points.

Many central banks across the world have recently raised their key policy rates in an attempt to rein in global inflation. The Federal Reserve, the central bank of the US, raised its rate for the fourth time in July.

Bangladesh's central bank left the reverse repo rate unchanged at 4 percent.

The new repo rate will be effective from Oct 2, the central bank said in a notice.

Central banks across the globe have been increasing lending rates to rein in inflation amid the Russia-Ukraine war.

The US Federal Reserve last week raised its target interest rate by three-quarters of a percentage point to a range of 3.00 percent to 3.25 percent and signalled more large increases to come in new projections showing its policy rate rising to 4.40 percent by the end of this year before topping out at 4.60 percent in 2023 to battle continued strong inflation.

The Bank of England also raised its key interest rate to 2.25 percent from 1.75 percent last week and said it would continue to "respond forcefully, as necessary" to inflation, despite the economy entering recession.

As part of measures to ease the pressure, Bangladesh Bank has raised the rate on trade financing in foreign currency, but Governor Abdur Rauf Talukder last month insisted they have no plans to remove the 9 percent ceiling on the lending rate in the local currency, which has lost much of its value against the dollar in the past few months.

Before the hike in the rate in the past few months, it had been unchanged for nearly two years since the central bank lowered it by 50 basis points in July 2020 to ensure cash flow amid coronavirus lockdowns. Inflation was also under control.

But the key economic index, which indicates consumer prices, started to rise due to effects of the war in Ukraine and Western sanctions on Russia.

In June, Bangladesh saw a 7.56 year-on-year increase in inflation, the highest in nine years. It fell slightly to 7.48 percent in July. Bangladesh Bureau of Statistics has not published August’s inflation data yet.

Toufique Imrose Khalidi
Editor-in-Chief and Publisher