Bangladesh’s central bank raises key rate a quarter point

Bloomberg

Bangladesh’s central bank raised the benchmark rate by 25 basis points to contain inflation that’s hovering near the highest level in a decade.
The benchmark repurchase rate was increased to 6% from 5.75% effective from Monday, Bangladesh Bank said in a statement on Sunday. The reverse repo rate will climb to 4.25%, it said.
The central bank said it will pursue a “cautiously
accommodative” policy stance to contain inflationary and exchange rate pressures. The policy stance will support “desired economic growth, ensuring the necessary flow of funds to the economy’s productive and employment generation activities,” it said in the
statement.
The South Asian nation delivered its fourth straight interest rate increase as inflation remains elevated, after coming off a decade high of 9.5% in September. The inflation target has been reset at 7.5% for the fiscal year through June 2023, from the earlier goal of 5.6% set in June 2022. Dwindling foreign currency reserves remain a concern for Prime Minister Sheikh Hasina ahead of elections due by January 2024.
The central bank also eased the lending rate cap for consumers’ credit to fluctuate up to 3 percentage points along with the complete removal of the deposit floor rate “considering the current market conditions,” it said. There is no limit for credit card loans.
“In the presence of a suitable economic condition, the removal of the remaining lending rate cap will be considered,” the central bank said. “These relaxations on the lending rate cap and the complete removal of the deposit floor rate may help grow the overall deposit rate.”
Bangladesh Bank is taking steps to gradually move toward a market-based, flexible, and unified exchange rate regime, within a 2 percent variation, by the end of this fiscal year, it said.
As commodity prices soared last year, Bangladesh faced an energy crisis that threatened the nation’s robust garments industry. Still, such exports from the $416 billion economy remained resilient, although rising costs of imports have widened the trade deficit.
Amid deteriorating foreign exchange reserves, Bangladesh sought funds from the International Monetary Fund and an initial pact for $4.5 billion in loans was reached in November.