Should we reduce interest rates?

Businessmen have long been pressing the regulatory authority, Bangladesh Bank, to cut down the lending and deposit rates of banks to single digits. To them, the current bank interest rates are higher than those of banks in other countries. They blame the high interest rate for the slow growth of investment in the country.

However, in the prevailing situation, lowering the interest rates to single digits is difficult to implement. Due to a persistent credit crunch, some banks are offering high interest rates for depositors and, consequently, seeking high lending rates. And despite the increased interest rate, banks are not getting deposits at the expected level.

If Bangladesh Bank forces banks to cut down this rate, it will further discourage the depositors. Moreover, when the interest rate was lower, there is little evidence that investment rose.

Mohammad Zonaed Emran, By email