Bangladesh Bank sets interest rate ceiling on non-resident forex deposits

The central bank today set the annual interest rate ceiling on the non-resident foreign currency deposits in order to mobilise funds from Bangladeshis living abroad and individuals of Bangladeshi origin.

In a notice, the Bangladesh Bank said the interest rate cap would be the benchmark reference rate plus 2.25 per cent for the deposits with a tenure of one year to three years.

A benchmark reference rate is an interest rate that determines other interest rates.

The ceiling will be the benchmark reference rate plus 3.25 per cent for the deposits with the tenure ranging from three years to five years, said the BB.

On July 17, the BB withdrew the interest rate ceiling on non-resident foreign currency deposits in order to increase the supply of the US dollar and arrest the ongoing volatility in the foreign exchange market.

Until then, banks in Bangladesh set the interest rate in line with the euro currency deposit rates followed by the lenders in the eurozone and offered interest rates ranging from 0.25 per cent to 0.80 per cent to depositors.

But savers do not feel encouraged to keep their funds at banks due to the lower interest rate.

"The interest rate ceiling is aimed at attracting foreign currency deposits from NRBs. It will allow savers to bargain for a better rate within the ceiling," said a central banker.