After banks, NBFIs are allowed to raise lending rates further

Bangladesh Bank is using the tools it has to tame high inflation

Published : 8 Oct 2023, 03:28 PM
Updated : 8 Oct 2023, 03:28 PM

Bangladesh Bank has allowed non-bank financial institutions or NBFIs to raise loan interest rates by a further 50 basis points as the central bank aims to tame high inflation by restricting the flow of money.

In a notice on Sunday, the central bank said the NBFIs can set the interest rates on loans by adding a margin of up to 5.5 percentage points instead of 5 percentage points to the reference rate. 

The ceiling for interest rates on deposits has been raised at 2.5 basis points from 2 percentage points above the reference rate

Since July, the monthly reference rate has been being determined on the basis of the six-month moving average rate of treasury bills.

After three years of maintaining a fixed interest rate cap on lending, Bangladesh Bank lifted the cap in its monetary policy for the second half of 2023 and set the new system to rein in the skyrocketing inflation.

Last week, the central bank allowed the banks to charge interests at 3.5 percentage points above the reference rate.

It also increased the key policy rate by 75 basis points to 7.25 percent to make borrowing costlier for the banks.