SINGLE DIGIT INTEREST RATE IN BANGLADESH

Lower financing costs are good news for borrowers, mortgage holders (contract holders). This gathering may spend more. 

Lower interest rates are bad news for savers. For example, retired people may live on their savings. If interest rates fall, they have lower disposable income and so will probably spend less

Single Digit Interest Rate

The government is going to implement the single-digit interest rate from April 1. It means the all the scheduled banks will be able to charge a maximum nine percent interest rate for creditors, and six percent for deposit. It was set to be implemented from January last. But later it was deferred for unavoidable reasons

What the central bank analysis said

The Bangladesh Bank analysis said deposit rate will decline if the lending rate is set at nine percent, and this will discourage depositors from keeping their deposits in banks.

As of December last year, 20 banks have deposits of less than a six-month tenure at six percent the interest rate or less, and 38 banks have deposited at 6.5 percent to 10.25 percent, according to the report.

However, foreign banks’ interest rate on deposit is comparatively much low, which means a deposit of the collection is possible even at a low rate.

Data from the Bangladesh Bank shows that deposit growth saw a sharp fall in October last year to 8.86 percent year-on-year, which was in double digits several months back.

The report said a single-digit interest rate will hurt credit inflow to the private sector as banks will be reluctant to lend at a low cost. However, a low lending rate will help businessmen cut their operational costs.

Private sector credit growth already touched bottom, hitting single digit in November, and the trend is likely to continue in the coming months, said, industry insiders.

The Bangladesh Bank the report said single-digit interest rate will reduce LC (Letter of Credit) opening, hurting imports and exports.

Advantage and Disadvantage   of single-digit interest rate

The legislature will execute the single-digit loan cost from April 1. It implies the all the planned banks will have the option to charge a most extreme nine percent financing cost for loaning and six percent for the store. It was set to be executed from January last. Be that as it may, later it was conceded for unavoidable reasons

For the last couple of months 'single-digit rate of interest' has been the talk of the town in Bangladesh. However, this did not happen overnight, as it took nearly a year to bring the interest rate down to a single digit. Merchant associations had been demanding a single-digit interest rate for the last few years.

After considering its advantage and disadvantage, the government set the highest deposit and advance rates at 6% and 9% respectively. But when this is implemented, investors, especially those at the grassroots, will be adversely affected. 

They will have challenges in finding a friendly sector to invest in. The capital market in Bangladesh is very dense and it has already lost trust among investors. Given the level of insecurity, many investors are also reluctant to put money in non-banking financial institutions. Previously, government savings certificates were the first choice among investors. But right now it has become quite difficult to invest in a savings certificate as the government has recently imposed some additional formalities.