BB ups policy interest rates to curb inflation image

The central bank has increased its policy interest rates by fifty basis points after nearly eight months to curb inflationary pressures on economy, officials said Thursday. The interest rate on repurchase agreement (repo) was re-fixed at 6.0 per cent Thursday from 5.50 per cent while the reverse repo rate was increased to 4.0 per cent from 3.50 per cent. The new policy interest rates came into effect from Sunday, a central bank announcement said. "We've increased the policy interest rates aiming to curb the inflationary pressure on the economy," General Manager of the Monetary Policy Department of Bangladesh Bank (BB) Begum Sultana Razia told the FE. She also said the central bank has used its monetary instruments including cash reserve requirement (CRR) to manage the country's overall macro-economy properly. On December 1 last, the BB raised the CRR by fifty basis points to 6.0 per cent for the commercial banks for containing inflationary pressure on the economy. "The re-fixation of interest rate on repo will also help reduce dependence on borrowing of the commercial banks and non-banking financial institutions from the central bank," another BB official said. On 19 August 2010, the central bank raised interest rate on repo to 5.50 per cent from 4.50 per cent while reserve repo interest was re-fixed at 3.50 per cent from 2.50 per cent. The central bank expects that the inflationary pressures might ease in the coming months following the latest policy intervention, the central bank official added. "We've increased the policy interest rates in line with the existing monetary policy," the BB official said, adding that the central bank has taken the latest move considering the country's overall economic situation. On 30 January this year, the central bank unveiled its second half-yearly monetary policy that aims at keeping inflation rate at around 7.0 per cent by the end of this fiscal through discouraging credit flow to unproductive sectors. Other major thrust of the policy aims at achieving an inclusive economic growth by facilitating productive sectors while keeping inflationary pressure under control. The BB's latest move came against the backdrop of increasing trend of inflation in the recent months because of the increase in prices of food items. The inflation rate as measured by the consumer price index (CPI) moved up to 8.14 per cent in January this year from 8.13 per cent in the previous month on the annual average basis, according to the Bangladesh Bureau of Statistics (BBS) data. On the other hand, the point-to-point inflation rate rose to 9.04 per cent in January 2011 from 8.28 per cent in December 2010. The market operators, however, said that the BB's latest move would influence the interest rates on both lending and deposit in the banking system. "The rising policy interest rate may discourage credit flow to the private sector in the near future," a senior treasury official of a commercial bank told the FE without elaborating.