Bangladesh Bank’s Changing Stance on Lending Rate Cap and Exchange Rate Regime

Governor of Bangladesh Bank, Abdur Rouf Talukder, has stated that the central bank is taking initiative to scrap the 9.0% lending rate cap and introduce a market-based interest rate on loans. The governor made the remarks on the second day of the Bangladesh Business Summit, an event held in Dhaka. The comment has been widely circulated in the daily newspapers.

This sort of statement regarding lifting of interest rate cap has been made before but we are yet to see any progress. However, this time the governor was more specific regarding BB’s stance on interest rate cap.

According to a reputed daily newspaper, central bank might initially set a reference rate on loans based on the demand for credit. Then they will set a range of a particular corridor of interest rates on the reference rate that will be applicable to borrowers which suggests that there will be relaxation on lending rate cap.

The governor has also stated that BB will gradually move towards market based exchange rate from existing multiple exchange rate system.