The Bangladesh Bank has decided to implement a market-based interest rate from July, moving away from the 9 per cent interest rate cap on loans, an initiative that may help the central bank uses its policy rates effectively in its fight against higher inflation.
Dealing with these two major challenges is essential for macroeconomic stability
The current lending rate, which equals the inflation rate, has brought about major challenges for the economy as a negative interest rate has prompted many large clients to borrow hugely despite subdued demand, giving them the leeway to divert funds to the unproductive sector.
The sharp rise in the rate of inflation witnessed in recent months is worrisome for at least two reasons: it is bad for investment decisions and economic growth, as well as for low-income people, especially those with fixed incomes.
Inflation bucked its runaway trend in July, becoming the third data point this month after remittance and import to provide some relief to a government on its toes about the direction the economy was taking.
Inflation crawled down to its lowest in 18 months in September on the back of the continuous fall in food prices.