Loan interest rate for NBFIs hiked to 13.18%

Days after hiking its key policy rate to tame inflation, the central bank has now hiked the lending rate for non-bank financial institutions (NBFIs) by 25 basis points to 13.18%. 

The regulator also increased the interest rates on deposit collection by 25 basis points to 10.18% for NBFIs, according to a Bangladesh Bank circular issued on Wednesday.

The new interest rates will come into effect from Thursday (30 November).

According to Bangladesh Bank data, the highest interest rate on NBFI consumer loans was 12.70% as of last October.

Earlier on 26 November, the Bangladesh Bank had increased its key policy rate by 50 basis points to 7.75% to control inflation by making borrowing more expensive for commercial banks and the private sector.

With that hike, the policy rate saw an increase by 125 basis points in less than two months as the central bank increased it by 75 basis points in October. The policy rate, or repo rate, is the interest at which the central bank lends to commercial banks.

Also, the interest margin with the SMART (Six Month Moving Average Rate of Treasury Bill), which is the reference lending rate, was hiked by 25 basis points to 3.75%, leading to a calculated lending rate of 11.18%, meaning that loans will be costlier, and the costs of doing business for the private sector will shoot up.

In its latest circular on Wednesday, the central bank said from now on, a 5.75% and 2.75% interest rates will be added to the SMART rate for NBFI loans and deposits, respectively. Currently, the SMART rate is 7.43%.

Bankers said the central bank will continue its contractionary measures until inflation comes under control.

In this case, the interest rates for all types of loans will increase to tighten the liquidity crisis in the market. 

Banks and financial institutions are increasing the loan interest rate as part of these measures.

The US Federal Reserve hiked rate for 11 times since March last year and neighbouring India went for a massive 250 basis points at one go in May last year to cool surging prices. Both economies have now chosen to keep their rates unchanged at high levels after significantly containing inflation that reached their peaks in decades for most Western economies.