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Interest rate against borrowing from banks has surged to 11.89% as the Bangladesh Bank raised the benchmark rate, known as Six-Month Moving Average Rate of Treasury Bill (SMART) for the month of January.
The benchmark interest rate in December-end was raised to 8.14% from the previous month’s 7.72% and the banks can add 3.75% to the SMART rate to charge their lending interest.
The benchmark rate has been increased 42 basis points in just one month, the highest in the past six months, making the borrowing even costlier.
According to the Bangladesh Bank data, during the first two months of the fiscal year — July and August, the interest rate was at 7.10% and 7.14% respectively. Then in September and October, the rate was again increased to 7.20% and 7.43%. In November, it was further raised to 7.72%.
Non-banking financial institutions (NBFIs) can add 5.75% to the SMART rate while fixing interest rates against their loan products.
The central bank calculates the SMART rate by taking the six-month average of treasury bill interest rate into consideration. Bangladesh Bank published the new rate on its website.
On the advice of the International Monetary Fund (IMF), the SMART rate corridor was introduced in July, the first month of the current financial year 2023-24 by lifting the 9% interest rate limit on bank loans.
As per the rules, the central bank reveals the SMART interest rate at the beginning of every month. This rate will be applicable to new loans to be disbursed in that month.
The interest rate will be effective for six months for customers taking loans in the specific month. The central bank is taking steps to check inflation by raising interest rates.
On the other hand, to tame inflation during October to November, the central bank hiked the repo rate, also known as the policy rate, by 1.25 percentage points to 7.75%.
The central bank Bank hopes that the rise in interest rates will make it easier to deal with inflation. After the introduction of the new rules, many banks have started increasing the interest rates on deposits.
As per the policy, the interest rate on agricultural and rural loans will be 1% lower than general ones.
In that case, a maximum margin of 2.75% will be added to the SMART rate. The interest rate for loans in this sector will be maximum 10.89% for the next six months.
However, banks can add an additional 1% supervision charge in case of consumer loans like cottage, micro, small and medium enterprises (CMSME) sector, personal loans and car purchase.
Bangladesh Bank published the six-month average interest rate of 182-day treasury bills from January this year.
(DS)
