Bangladesh Bank caps interests on non-resident foreign currency deposits

The rate will be up to 3.25 percentage points higher than the benchmark reference rate

Published : 1 August 2022, 06:05 PM
Updated : 1 August 2022, 06:05 PM

Bangladesh Bank has capped interest rates on Non-Resident Foreign Currency Deposit Accounts two weeks after removing the ceiling for banks to offer lucrative rates to expatriate Bangladeshis and foreigners.

In line with the Guidelines for Foreign Exchange Transactions-2018, banks are allowed to open interest-bearing NFCD accounts in the name of non-resident Bangladeshi nationals and persons of Bangladesh origin, including those having dual nationality and ordinarily residing abroad.

The Eurocurrency deposit rate, which usually remains between 1 percent and 1.5 percent, was applicable to these accounts.
After the removal of the cap on Jul 17, banks were able to raise fresh deposits under NFCD accounts without following the regulation on the interest rate.

This relaxation was also applicable to NFCD accounts of foreign nationals and companies registered or incorporated abroad, banks, financial institutions, institutional investors and fully foreign-owned industrial units in the Export Processing Zones, Economic Zones and High-Tech Parks.

On Monday, the central bank said in a notice it decided to set an annual interest rate ceiling along with benchmark reference rate in the relevant currency of deposit in order to “bring uniformity”.

The ceiling of interest rate on deposit in foreign currency for one to three years will be 2.25 percentage points higher than the benchmark reference rate.

It will be 3.25 percentage points higher than the benchmark reference rate for deposits with a tenure between three and five years.

Central bank officials said the banks will be able to offer up to 3.25 percentage points above London interbank Offered Rate or Libor for deposits in NFCD accounts, which means the ceiling will be around 7 percent. The banks are currently offering around 6 percent interest on these accounts.

For deposits in euros, the reference rate will be Eurobor while it will be Sterling Overnight Index Average for deposits in pounds.

The dollar price has soared against the taka due to a shortage of the foreign currency as rising prices of imported goods and shipping costs amid the recovery from the pandemic and the Russia-Ukraine war have put pressure on Bangladesh’s reserves.

The authorities have taken a slew of measures, including restrictions on the imports of luxury products, to save dollar reserves that have fallen below $40 billion for the first time in two years.

Toufique Imrose Khalidi
Editor-in-Chief and Publisher