The central bank of Bangladesh increased its policy interest rate by 50 basis points, to 10 per cent, with effect from 27th October 2024, in an effort to counteract the rising rate of inflation.
This decision comes after the central bank’s study, Inflation Dynamics in Bangladesh, was recently released. It showed that domestic products were the main cause of inflation, contributing 74% of the overall inflation in the September 2024 quarter.
The standing lending facility (SLF) rate has been raised to 11.50 per cent as a result of the most recent policy rate hike, while the standing deposit facility (SDF) rate has climbed from 8% to 8.50 per cent. Since May 2022, Bangladesh Bank has been using a more comprehensive contractionary monetary policy approach, which includes these measures. Governor Ahsan H. Mansoor has indicated that additional hikes are anticipated to maintain inflation control.
Numerous industries in Bangladesh are affected by this policy change, notably the ready-made garment (RMG) sector, which is a vital economic pillar. increased policy rates usually result in increased borrowing costs for companies, which affects their financial planning and operations. Manufacturers may find it more difficult to control production costs when bank loan costs grow, which could have an impact on pricing policies and profit margins.
Moreover, increased interest rates can deter fresh funding for development projects, which could slow down expansion ambitions. These financial difficulties may result in order fulfilment delays or decreased competitiveness in the global market for industries like RMG, where cash flow is critical. Higher interest rates may also have a negative impact on consumer expenditure since they may cause a decline in the demand for clothing and other products.
