The Bangladesh Bank on Tuesday kept the policy rate unchanged at 10 per cent, defying strong demands from the business community to ease borrowing costs as high interest rates continue to squeeze corporate finances and undermine operations.
While inflation has shown signs of easing 鈥� dropping to 8.48 per cent in June from over 9 per cent for 35 consecutive months 鈥� the central bank chose not to adjust the key rate that sets the tone for market lending.
Although the central bank reduced the Standing Deposit Facility (SDF) rate 鈥� the floor of the interest rate corridor 鈥� by 50 basis points to 8 per cent, it kept the policy repo rate and the Standing Lending Facility (SLF) unchanged at 10 per cent and 11.5 per cent respectively, according to a circular issued by the BB on Tuesday.
By lowering the SDF rate, the central bank aims to discourage banks from parking idle funds with the BB and instead encourage lending in the market.
However, the unchanged repo rate means that banks still face high borrowing costs from the central bank, which keeps market lending rates elevated.
For businesses 鈥� already struggling with sluggish demand, rising input costs, and a weak currency 鈥� the continued high interest rate further raises the cost of capital, making it harder to finance operations, invest, or expand.
The impact is particularly severe for small and medium enterprises that depend heavily on bank financing.
Since the repo rate was raised to 10 per cent in September 2024 to curb inflation, credit costs have remained high, directly increasing the burden on borrowers.
Higher lending rates reduce loan demand and slow the flow of funds in the economy, which may help contain inflation, but also stifle business activity and growth.
Despite some moderation in inflation, the high policy rate and weakening currency continue to weigh heavily on the private sector, which is already under pressure from shrinking margins and declining competitiveness.
