Uncertainty around deposit and lending rates

Bangladesh Bank (BB) ordered all scheduled banks to downsize the deposit and lending rates to 6 and 9 percent respectively. Interest rates are decided by the forces of the open market rather than the central regulatory body. Thus, there is a possibility that the instructions of the BB will take time to be implemented.

Also, non-performing loans have soared alarmingly, and this will eventually have major unwanted economic repercussions. People will be reluctant to deposit their funds in banks due to the low interest rates. Moreover, the inflation rate is hovering around 5 to 6 percent which means that if deposit rates are at 6 percent, the depositors will actually earn next to nothing against their savings.

Bank experts and economists have opined that instead of forcefully implementing the prescribed deposit and lending interest rates, the government and the BB should work together to establish good governance in the banking sector and address the burning issue of non-performing loans.

Mohammad Zonaed Emran, by email