Most bank depositors in Bangladesh see their capital-gains evaporate as high inflation continues to outstrip fixed-deposit interest, stoking concerns about the real value of their money.
In the just-past month of November, the overall inflation rate in the country was recorded at 11.38 per cent, significantly higher than the fixed-deposit rates offered by most banks -- pegged below 10 per cent.
This gap means depositors are effectively losing purchasing power, and having less on their platters, as the returns on their savings fail to keep pace with rising prices.
While a handful of banks are offering interest rates above 10 per cent, these institutions often lack market confidence and trust of people, making them less attractive to cautious savers.
As a result, the majority of depositors find themselves with limited options to preserve the value of their hard-earned money.
In October 2024, the latest Bangladesh Bank (BB) report showed weighted average interest at state-owned commercial banks 8.62 per cent for fixed-deposit savings for one year, state-owned specialized banks at 7.86 per cent, foreign-commercial banks at 6.86 per cent and private commercial banks at 9.45 per cent.
Officials at the central bank told the FE that previously the Bangladesh Bank issued a circular relating to protecting interests of depositors, stating that the deposit-interest rate must be at least equal to three-month average rate of inflation.
"After May 2024, when interest regime became market-based the circular is no more effective," says a senior central banker, wishing anonymity.
He also acknowledges that the depositors are losing out in real sense as the inflation is higher than 10 per cent.
Economists warn that this mismatch between inflation and deposit rates could discourage savings in the banking system which is already facing a tight market for a long time.
They say this imbalance needs to be addressed urgently, emphasizing the need for strategies that protect the interests of savers.
"When inflation outpaces deposit rates, people seek alternative investment options, which could reduce the availability of funds for banks," says Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office.
The economist, however, feels that actually Bangladesh has right now no alternative but to fight this stubbornly higher inflation.
Mr Hussain stresses containing the wayward inflation, arguing that the tight monetary policy should continue.
Dr M. Masrur Reaz, founder and chairman of Policy Exchange of Bangladesh, a private think-tank, says the situation also underscores broader challenges in Bangladesh's financial sector, including inefficiencies in market-based interest regime.
He also suggests stronger measures to come to grips with the indomitable inflation.
"Unless inflation moderates or deposit rates rise, depositors will continue to see their wealth eroded, further eroding confidence in traditional banking," he told the FE.
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