Central bank cuts policy rates

The central bank has cut its policy rates for the first time in three years in an effort to spur investment and the GDP growth.    

However, the private sector credit growth target for June next was slightly reduced compared to the earlier projection with caution for core inflation pressure which is still high.

“This policy recalibration - lower policy rate and prudent credit and broad money targets - can sufficiently accommodate growth without sacrificing the inflation performance,” said Bangladesh Bank Governor Atiur Rahman today while announcing the Monetary Policy Statement (MPS) for the second half of the current fiscal year.

“Global potential growth has slowed. Global growth performance will be slower than in the past. What does it mean for our macro- strategy and growth aspirations? The short answer is: For the same level of growth, we will need to row harder.”

The central bank cut the repo and reverse repo rate by 50 basis points to 6.75 percent and 4.75 percent respectively which is the lowest after 2011.

The repo and reverse repo rates remained unchanged at 7.25 percent and 5.25 percent since February 2013.

The MPS said, this move will attempt to dampen other interest rates in the market and thus will help investment stimulate. Necessary market alignments warranted this change.

The repo rate is the rate at which the central bank lends to commercial banks. A cut in the repo rate helps the commercial banks get money at a cheaper rate in the event of a fund shortfall.

The reverse repo rate is the rate at which Bangladesh Bank borrows funds from commercial banks to control money supply.