Bankers find it difficult to implement new interest rates

According to a recent directive of the Bangladesh Bank, the last three months’ inflation needs to be taken into account to set the interest rate on bank deposits. 

However, the people concerned think that the implementation of this directive by the central bank will be difficult.

Also Read - Bangladesh Bank will not allow deposit rate below inflation

The issue of fixing new interest rates also came up in the bankers' meeting, organized by Bangladesh Bank on Wednesday. The chief executives of different banks have expressed their dissatisfaction regarding the directive.

The bankers think that the income of the banks will decrease as a result of this directive. Their proposal, in this case, is to set a limit on the maximum amount of money that can be given as a deposit.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told the media that the way interest rates on loans and deposits are being fixed, there is a risk that business costs will go up. 

“Moreover, due to the fixing of the new interest rates, our income will also decrease,” he said.

In this context, former caretaker government's finance adviser AB Mirza Azizul Islam told Dhaka Tribune: “In the current economy, inflation is higher than the interest rate on deposits. If this situation continues, the habit of saving may decrease in the future.” 

“While this decision is good for the short term, I think the interest rate should be on the market system. Otherwise, it could be difficult to implement,” he added.

The central bank has specified that the benefit will be available on individual term deposits and term deposits held as provident funds, pension funds or funds of various public and private institutions.

Also Read - Inflation, a major headache for shrinking deposit dividends

Apart from this, there will be no additional interest against the deposits of public and private institutions in the bank.

According to the Bangladesh Bank and Bangladesh Bureau of Statistics (BBS), the average interest rate on bank deposits in June’21 was only 4.1%, while the average inflation rate in the same month was 5.56%. Although, in July, it came down to 5.36%.

Meanwhile, the overall deposits grew by more than 14% to Tk13,50,413 crore as of June 30, 2021, from Tk11,80,997 crore a year before, despite the ongoing Covid-19 pandemic, according to the central bank's latest statistics.