Lending rate won't rise due to cautious monetary policy: BB governor

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Bangladesh Bank (BB) Governor Salehuddin Ahmed Saturday said that interest on bank loans, particularly long-term ones, would not increase as a consequence of the recently announced monetary policy, reports UNB.
"We are alert about this," he told a seminar, making it clear that the policy does not mean the measures would come the very next day.
South Asian Free Media Association (SAFMA) organised the seminar titled "Poverty and Role of Bangladesh Media" at the Jatiya Press Club, with SAFMA president Reazuddin Ahmed in the chair.
Bangladesh Economic Association (BEA) president QK Ahmad and FBCCI president Mir Nasir Hossain also took part in the discussion while SAFMA general secretary Zahiduzzaman Faruque gave the address of welcome.
The governor said the central bank's policy stance was taken in the backdrop of rising money supply and reserve money despite cautious monetary policy over last 18 months.
He said money supply increased 19 per cent in the last fiscal year, far more than the central bank's expectation of about 15 per cent. The reserve money also increased significantly, with around Tk 100 billion (10,000 crore) as surplus liquidity in the banking system.
Salehuddin said the investors might refrain from approaching for bank loans for 'some reasons.'
"We are observing the situation," he said, indicating that the monetary policy measures would be taken depending only on the situation of money supply and reserve money.
Bangladesh Bank announced a "cautious monetary policy stance" for the first half of the current fiscal year on July 14.
According to the policy stance, the policy rates - repo, reverse repo and treasury bonds as well as commercial banks' mandatory reserve requirements (SLR and CRR) with the central bank would be increased.
"We'll ensure that the policy rates do not affect the interest rates and government borrowing does not affect the private sector lending and lending rates," said the BB governor, adding that the central bank would soon convene a meeting in this connection.
He further said he would take up the issue of government borrowing from the banking system to see that it does not affect the monetary policy.
Salehuddin said the central bank repeatedly requested the commercial banks to reduce the interest rate spread-the gap between the deposit rates and the lending rates-but the commercial banks reduce the deposit rates if they have to cut lending rates.
FBCCI president Mir Nasir posed a question to the BB governor whether the private sector would survive if increased utility tariffs (electricity, gas and fuel oil), now under government consideration, are imposed simultaneously with the already-high interest rates on bank loans.
He said the interest rate in Bangladesh is 14 per cent plus while it is 3.0 per cent in China and 7-8 per cent in India.
The apex trade body president said the cautious monetary policy would ultimately put pressure on the private sector. "Fund is available, but we'll have to look at the interest rates," he said, adding that the private sector is passing through a critical situation.