Manufacturing to enjoy single-digit interest rates from January
The decision may help cut the cost of doing business
The board of Bangladesh Bank has decided to implement single-digit lending rates only for the manufacturing sector.
The decision came at central bank's board meeting held yesterday at its headquarters.
Only working capital in the manufacturing sector will enjoy single-digit interest rates, Md Serajul Islam, spokesperson of the Bangladesh Bank, told reporters after the meeting.
The manufacturers now have to pay 15-17 percent interest on a bank loan.
Serajul said the central bank will issue a circular soon in this connection.
The decision of single-digit lending rates will come into effect from January 1, he added.
Manufacturers failing to pay the loan on time will have to pay an extra 2 percent interest, said sources at the meeting.
Earlier on December 1, the Bangladesh Bank formed a committee to find a way to cut interest rates to single-digit as private banks could not lower their lending rates even one year after their promise to do so.
The committee, headed by a deputy governor of the central bank, placed the report with recommendations, at the board meeting.
However, experts opposed the fixing of interest rates, terming it contradictory to the existing system.
Syed Mahbubur Rahman, chairman of Association of Bankers, Bangladesh and also managing director of Mutual Trust Bank, said, "This is a step in the right direction; there is no doubt about it. But cutting the deposit rate will be the biggest challenge."
The central bank has also asked the Ministry of Finance to make sure that the private banks get 50 percent of government deposits.
"This is contradictory to the existing banking system. If the central bank fixes the interest rate by issuing a circular, it will take the banking system back to the 1970s or 1980s," said Ahsan H Mansur, executive director of the Policy Research Institute.
"The sudden change in lending rates will benefit only influential people. The circular will open up a door for further looting of money. Also, the bank deposits will collapse as depositors will go for savings certificates," he explained.
On August 4, this year, the finance minister held a meeting with the chairmen and managing directors of private banks at the Bangladesh Bank headquarters and instructed the central bank to issue a circular to implement the single-digit interest rate.
Asking the private banks to implement it, the Bangladesh Bank sent a letter to them instead of issuing a circular.
But the banks did not comply with the central bank's instruction, showing the excuse of liquidity crisis.
In April last year, the private bank directors promised to bring down the lending rate to 9 percent and the deposit rate to 6 percent.
The promise came after the then finance minister AMA Muhith had given the banks some special facilities by reducing their compulsory reserve requirement.
Each bank has to maintain a certain portion of their deposits to the central bank and if the requirement is lowered, the banks get more money to lend.
One year following the banks' promise, Finance Minister AHM Mustafa Kamal met with the chairmen and managing directors of all the banks on December 1 and gave Bangladesh Bank Governor Fazle Kabir the responsibility to form the committee.