An unlikely delay in announcing SMART rate for May generates speculations that the money-market regulator may either jettison the benchmark-driven lending-interest calculations or make some amendments.
The musing over the pause gains ground as the International Monetary Fund (IMF), as part of its $4.70-billion lending package for restoring Bangladesh's tightened macroeconomic stability, is not enthusiastic about the current state of lending-rate arithmetic for the financial sector, according to sources.
Not only the multilateral lending agency but also the businesspeople of Bangladesh are critical of the current interest-calculating method based on the moving six-month average rate of treasury bills as the cost of formal credit keeps surging and hurting their business competitiveness.
Uncapping the lending rate, Bangladesh Bank (BB), the country's central bank, pivoted to the benchmark rate called SMART (six-month moving average rate of treasuries) starting from this financial year (FY'24).
In this method loan-interest rate is determined through adding up interest margin to the SMART rate, and the BB officially announced that the rate will be rolled out at the beginning of every month so that banks and financial institutions can adjust the interest rate based on the SMART.
Until April 2024, the praxis had been practised. But the central bank has not yet announced the SMART rate for May even though three days of the month have gone by-and this gives rise to predictions and speculations on the money market.
Seeking anonymity, a BB official said the IMF representatives in meetings with the central bankers as part of their appraisal mission before releasing the second tranche of the loan raised question over effectiveness of SMART-centric interest calculations.
But the BB authority told them that the central bank had taken up the temporary mechanism to get out of the lending-cap regime, the central banker said.
The SMART rate has yet to be set for this month, which creates confusion even in the central-bank precincts, according to the official.
"But I don't have any information as to whether the BB will shift from SMART or bring any change in SMART regime," the central banker added.
Talking to The Financial Express, BB spokesperson Md Mezbaul Haque said the announcement of SMART Rate is delayed because of some internal issues. Hopefully, it would be announced Wednesday next (May 8, 2024).
"The banks will follow the SMART rate for April in calculating lending rate until new one comes," he added.
A top executive of a private commercial bank, who preferred not to be quoted by name, said they heard that the central bank was going to get out of the SMART regime, which is basically a managed system, and might go into a system determined by supply-and-demand dynamics.
And there is also a mounting pressure from the private-sector players not to continue with the SMART method as the lending rate continues growing to cross 13 per cent, he mentions.
"And the delays in announcing SMART Rate for this month indicate that something new is going to happen," the banker also speculates.
Top executive of Dhaka Bank Emranul Huq says the central bank controlled the burden of the growing lending rate in recent times by squeezing the interest margin so that the pressure on the private sector is not too high.
"We are facing some complexities in fixing lending rate for fresh loans in absence of SMART rate for this month," he adds.
However, sources at the BB have said monetary policy committee (MPC) will hold meeting on May 8 at the BB headquarters after the visit of the travelling IMF delegation to assess progress on their loan conditions. In the meeting, the issue of SMART would largely be discussed before deciding fate of the current pattern of the reference rate.
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