Bank-Insurance
BB Considers Policy Rate Hike to Combat Inflation
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.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.
In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.
Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.
Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.
This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.
Prime Bank PLC has recently received Bancassurance Business commencement approval from Bangladesh Bank.
Mohammad Shahriar Siddiqui, director, BRPD, Bangladesh Bank handed over the approval letter to Nazeem A Choudhury, deputy managing director – consumer banking of Prime Bank PLC, at a ceremony held at Bangladesh Bank recently.
Mohammad Ashfaqur Rahman, additional director, BRPD, Bangladesh Bank, Ashraful Alam, joint director, BRPD, Bangladesh Bank, Miah Mohammad Rabiul Hasan, chief bancassurance officer, Prime Bank PLC were also present at the ceremony.
Bancassurance is a partnership between a bank and insurance company that will allow a Bank to sell insurance products of the insurance company through its distribution channels.
To offer a wide range of products to its customers and ensure best in class service, Prime Bank has partnered with leading insurance companies National Life Insurance Company Ltd. and Reliance Insurance Ltd.
Being one of the leading banks of the country, Prime Bank hopes to cater to the needs of insurance requirements of its customers through Bancassurance, in Bangladesh market.
