Policy interest rate hiked to 8.5pc, SMART system cancelled

Bangladesh BankProthom Alo

The Bangladesh Bank has raised the policy interest rate by 50 basis points from 8 per cent to 8.5 per cent, in an effort to curb inflationary pressures.

The banking sector regulator issued a circular in this regard on Wednesday, saying its committee on monetary policy made the decision in a meeting.

In a separate circular, the central bank announced withdrawal of the six months moving average rate of treasury bills (SMART) system in determining the loan interest rates, with a view to transitioning towards a fully market-based system for loan interest rates.

At the same time, the upper and lower limits of the policy interest corridor have been adjusted with the policy interest rate.

The interest rate ceiling, standing lending facility (SLF), has been raised by 50 basis points from 9.5 per cent to 10 per cent, while the floor, standing deposit facility (SDF), has been increased by 50 basis points from 6.50 per cent to 7 per cent.

The new decisions will take effect from Thursday. The central bank aims to temper the flow of money within the economy and subsequent inflation, by elevating the policy interest rate.

A higher policy rate incentivises commercial banks to borrow from the central bank at a higher cost, leading to a rise in interest rates for loans extended to customers.

The circular for withdrawal of the SMART system noted that the interest rates will be determined as per relationship between the bankers and customers, subject to availability of demands and loanable funds in the banking sector.