In response to persistent inflation, Bangladesh Bank has raised the policy interest rate by 50 basis points to 10%, marking the fifth increase this year. This move, effective October 27, has sparked concerns within the business community, as the increased cost of borrowing is expected to strain existing operations and hinder future investments.
The repo rate now exceeds the inflation rate for the first time in years, coinciding with a 44% year-on-year drop in letter of credit openings for capital machinery imports. Business leaders argue that the high financing costs could lead to defaults and damage investor sentiment. Despite the central bank’s intent to control inflation, experts warn that the policy tightening may deter both domestic and foreign investment, risking job creation and economic growth. Additionally, the increased borrowing costs could exacerbate liquidity issues in the banking sector, further pressuring the economy as businesses face rising costs and shrinking credit flow.
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