The Bangladesh Bank has raised the repo rate by 50 basis points to 7.75%, marking the eighth hike in 19 months, aiming to combat surging inflation. This move makes loans costlier and offers better returns to savers. The margin added to the Six Months Moving Average Rate of Treasury Bills (SMART) rate for loan extensions has also increased by 25 basis points to 3.75%.
Consequently, the maximum lending rate of banks rises to 11.18%. The central bank aims to bring down point-to-point inflation to 8% by December and 6% by June 2024. The move aligns with efforts to stabilize the exchange rate amid inflationary pressures driven by global commodity prices and a weakened local currency.
The Policy Research Institute suggests aggressive policy rate hikes may be necessary, emphasizing the need to address challenges like higher inflation and dollar market volatility. The repo rate increase is expected to elevate the cost of borrowing, potentially impacting liquidity and redirecting funds from banks to government treasury bills and bonds.