Loans to become costly as policy rates hiked by 25 basis points

Bangladesh Bank today hiked its key interest rate or policy rate by 25 basis points to 5.75 per cent with a view to containing the inflationary pressure.

The latest hike came just after less than three months as it had increased the rate by 50 basis points to 5.5 per cent on June 30 while declaring the monetary policy statement.

Before that, it also raised the rate by 25 basis points on May 29.

The policy rate is a pivotal benchmark interest rate that commercial banks follow for fixing interest rates on both loans and deposits. A spike in policy rates makes loans more costly.

Quoting the policy rate, cash-strapped banks take short-term loans from the Bangladesh Bank and then disburse those to individual borrowers in many cases.

Md Habibur Rahman, chief economist of the banking regulator, said inflation may stoke further in the days to come, which is why the central bank has raised the policy rate once again.

In July, inflation fell to 7.48 per cent from a nine-year high of 7.56 per cent in June.

The government has not published the figure for August.

In addition, the private sector credit growth is now on the increase, an indication of the upward trend of the money supply to the market, Rahman said.

Hiking of the policy rate means the central bank is now stricter to supply money to the market than before.