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Rising cost of doing business

Businesses deplore bank interest rise, dollar dearth

FE REPORT | September 19, 2023 00:00:00

Bangladesh's apex chamber seeks central bank's intervention to check rise in bank-loan interest, under the current cap-free lending regime, as businesses count rising cost of doing business.

Sources said leaders of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Monday met the Bangladesh Bank high-ups with this plea, and also with request for resolving dollar crunch.

They said the lending rate kept rising since the BB lifted the lending caps from the current fiscal year (FY'24). Higher lending rates push up the doing-business cost which blunts competitiveness of the private sector.

An FBCCI delegation, led by its newly elected President Md Mahbubul Alam, met with Bangladesh Bank Governor Abdur Rouf Talukder at the central bank headquarters, when other problems like dollar crunch and resultant constraints in LC opening for imports were also raised.

The apex trade body noted with concern that as many of them are compelled to purchase the US dollar at rates much higher than the official exchange to meet their overseas-transaction needs.

After the meeting was over, the FBCCI president told reporters that they discussed the lending rate which continues to rise in recent times, hurting growth in private-sector business.

"To avert further stress," he said, "we requested the governor to take measures to prevent interest-rate hike in this challenging period of time when the economy is under stress for various external and internal factors."

He said the governor assured them that the lending rate is being fixed in a systematic way based on the SMART reference rate and there is no chance of an abnormal increase in the lending rate. However, there might be only a slight increase in line with the market-based reference rate.

The businessman from the port city of Chattogram also said they discussed persistent shortage of the greenback in the country and requested the governor to ensure implementation of the official exchange rate in purchase of the US currency to meet their foreign- exchange obligations.

The FBCCI delegation also requested the BB governor for expanding the loan-rescheduling facility for all sectors considering the long-term impact of the Covid-19 pandemic, the Russia-Ukraine war and the persisting global economic instability.

Also, the business leaders sought intensive cooperation of the central bank so the commercial banks can allow women as guarantor of formal credits disbursed to women entrepreneurs.

Meeting sources said the central bank governor assured the business leaders of taking steps so the banks can allow women to underwrite such loans.

In June last, the BB uncapped the interest ceiling and adopted a new interest regime, which came into effect on July 1, based on the reference rate.

Under the new system, the lending rate for banks is being determined based on SMART (six-month moving average rate of Treasuries) plus maximum 3.0 percentage points.

Spokesperson for the BB Md Mezbaul Haque said there is no trade imbalance right at the moment and so the price of the US dollar should not be high. He further said the exchange rate is set by the BAFEDA and ABB and the central bank closely monitors it.

About the lending rate, he said it is being fixed by a market-based reference rate and the governor assured them that the interest wouldn't rise much.

According to the central bank's July balance of payments (BoP), the current-account balance was US$537 million surplus, largely for getting tightfisted in spending, including import restrictions and prioritising development-project execution.

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