In the latest monetary policy committee meeting of Bangladesh Bank, the central bank has decided that they will introduce a benchmark lending rate, also known as reference rate, abolishing the existing 9.0% lending rate cap in the next monetary policy which will be declared in the third week of June this year.

The following are the points we know so far regarding the new policy on lending rate:

• BB is preparing a mechanism to calculate the benchmark lending rate to adopt interest rate based monetary policy as International Monetary Fund (IMF) suggested BB to implement interest rate corridor system to make the policy rates effective in guiding interest rates in the market which is not in place currently.

• The proposed benchmark lending rate will be the reference rate for commercial banks in setting interest rates for borrowers.

• The most likely scenario in this regard is that the central bank will announce a single lending rate based on various existing rates like government treasury bills, bonds, and inter-bank rates and banks will use this as the reference rate.

• The benchmark rate will be changed every month based on market demand.

• BB has also decided to introduce a policy interest rate corridor which will guide the short term market interest rates.

Apart from the reform in interest rate regime, BB has also stated that they will implement unified market based exchange rate regime from Jun’23.