Deposit rates are comparatively high in Bangladesh: Finance minister

The interest rate of term deposits are below inflation rate in many countries, said Finance Minister AHM Mustafa Kamal.

"The interest rate is already comparatively high in Bangladesh than other countries," the minister said after a meeting of Purchase Committee today.

Earlier on 8 August, the Bangladesh Bank, in a circular, said that the interest rate of term deposits must not be less than that of inflation from now on. 

In case of setting a monthly interest rate on deposits of three months or above, banks have been instructed to calculate average inflation of the previous three months, according to the circular. 

In the circular, the Bangladesh Bank observed that most banks are offering lower interest rates for deposits than inflation rate. As a result, savers are being affected and losing their purchasing capacity. 

In this situation, depositors are diverting their money to unproductive sectors instead of parking in banks. Such a trend will affect banks in the future, creating imbalance between deposits and assets, said the circular. 

Currently, most banks are offering 2% to 3% interest rates on deposits, the lowest in recent history and far below the 5.56% inflation rate as of June, according to the Bangladesh Bank data. 

The lowest deposit rate is the spillover effect of excess liquidity and lending rate cap.

The Bangladesh Bank has set a 9% lending rate cap from 1 April last year. As a result, banks went for a massive cut in deposit rates to adjust their fund costs.