Country Report Bangladesh January 1996 Main report

Banking & Finance: The bank rate is raised

In September the Bangladesh Bank (BB, the central bank) raised the bank rate by 0.25%, to 5.75%, to curb credit expansion, particularly to the private sector, and thus dampen inflationary pressure. At the same time, rates for depositors were raised by a higher margin, 0.5%, to encourage savings. The rise in interest rates was the first since the government came to power in 1991 and follows a long series of rate reductions since then. According to the governor of the BB, credit to the private sector rose by 24% in 1994/95, while credit to the public sector increased by 4.5%, statistics which seemed to place the cause of the inflationary pressures squarely on private-sector credit growth. However, a spokesman for the Metropolitan Chamber of Commerce and Industry said in September that the BB had been forced to raise interest rates because of a fourfold increase in lending to the government during July and August (the first two months of fiscal 1995/96), to Tk12bn ($299m), compared with the same period last year.

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