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BB Considers Policy Rate Hike to Combat Inflation

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In a strategic move to curb inflation, the Bangladesh Bank (BB) is contemplating a policy rate hike for the second half of the ongoing fiscal year (January-June), as revealed by a central bank official. The potential adjustment involves increasing the repo rate, the benchmark rate at which banks borrow from the central bank, by 25 to 50 basis points. This move could position the policy rate between 8% to 8.25%, following a 50 basis points increase in November 2023.

Analysts anticipate a direct impact on borrowing costs, with banks likely to raise interest rates on loans. The adjustment could lead to increased expenses for businesses and individuals, potentially influencing spending patterns and investment decisions.

Simultaneously, the central bank is considering reducing the spread between the interest rates of the standing lending facility (SLF) and the standing deposit facility (SDF). Officials suggest that this reduction in the spread could result in a more confined corridor, ranging between ±150 to ±175 basis points.

Commercial banks, addressing liquidity needs, borrow from the central bank through the repurchase agreement or repo rate. The central bank’s adjustments aim to shift from a money supply-based monetary policy to an interest rate-based approach.

Despite multiple adjustments to the policy rate over the last six months, the central bank has faced challenges in controlling inflation. Managing directors of commercial banks anticipate a rise in lending rates due to the increase in the policy rate, affecting borrowing costs and subsequently impacting the lending market.

Aligned with a contractionary monetary policy, the central bank raised rates for all types of treasury bills by 10-20 basis points. The new monetary policy, targeting an inflation rate between 6-7%, will be officially announced on January 17, following its finalization in a central bank board meeting.

As of December, Bangladesh’s overall inflation stood at 9.41%, according to data from the Bangladesh Bureau of Statistics. The first-half monetary policy for FY24 introduced key reforms, including a policy interest rate corridor, reference interest rate for lending, exchange rate unification, and revised methods for calculating the gross international reserve in line with international standards.

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Cenbank Prolongs Import Payment Terms for Raw Materials Until Dec 2024

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The Bangladesh Bank (BB) has announced an extension for the payment period against imports of industrial raw materials from 180 to 360 days, a measure now set to remain in place until December 2024. This policy, initially scheduled to end in June of this year, has been prolonged to facilitate trade transactions, according to a BB circular issued today.

“To support trade transactions, it has been decided to extend the policy support until December 31, 2024. The extended usance period will not apply to imports under EDF loans, as previously stipulated. All other relevant instructions remain unchanged,” the circular stated.

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Banks in Industrial Areas to Open June 14-16 for Eid Payments

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To ensure timely payment of salaries and bonuses to garment industry workers before Eid-ul-Azha, the branches of banks in key industrial areas will remain open on a limited basis on June 14, 15, and 16.

The Bangladesh Bank (BB) issued a notification stating that bank branches in Dhaka metropolitan, Ashulia, Tongi, Gazipur, Savar, Bhaluka, and Narayanganj will operate on these days to facilitate financial transactions for garment sector employees.

Typically, Friday and Saturday (June 14 and 15) are weekly holidays, and Sunday (June 16) will be closed for Eid. Despite these closures, the BB has mandated that banks in industrial regions stay open to manage the disbursement of wages and bonuses and facilitate the sale of export bills.

Additionally, bank branches in Chattogram metropolitan and industrial areas will also be open to support garment workers’ payments and the processing of export bills.

The BB has instructed banks to coordinate with local authorities to ensure adequate security at the branches during this period.

Eid-ul-Azha, one of the most significant religious festivals for Muslims, will be celebrated in Bangladesh on June 17.

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Cenbank Mandates Real-Time Reporting of Willful Defaulters

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The Bangladesh Bank (BB) has issued new instructions to banks to submit data on willful defaulters to the Credit Information Bureau (CIB) database. This directive was issued on Tuesday, requiring immediate compliance from commercial banks and non-banking financial institutions (NBFIs).

In a circular released by the CIB of the central bank, banks have been instructed to report their June data in real-time starting July 1. The circular has been sent to top executives of banks for prompt execution.

This move follows an earlier initiative by the BB, outlined in a circular on March 12, aimed at identifying willful defaulters within the banking sector. The central bank also detailed actions to be taken against such defaulters.

According to the circular, any client who takes a loan anonymously and misuses it will be classified as a willful defaulter. Banks were directed to establish a ‘willful defaulter identification unit’ by April 9 to facilitate this identification process.

The circular further stipulates penalties for non-compliance. Banks that violate these conditions will face fines ranging from Tk 50 lakhs to Tk 1 crore. Continued violations will incur additional fines of Tk 1 lakh per day.

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