The Bangladesh Bank on Tuesday increased the policy rate by 50 basis points to 9.5 per cent with the aim of tightening money supply to control inflation.
The central bank issued a circular in this regard on the day.
Apart from the repo rate, the highest ceiling on policy rate corridor of standing lending facility (SLF) rate has been increased by 50 basis points to 11 per cent while the lowest limit on standing deposit facility (SDF) rate has been raised to 8 per cent.
The special repo rate was renamed as the SLF and the reverse repo renamed as the SDF.
The central has decided to raise the rate amid persistent inflationary pressures in the country.
The inflation rate soared to 10.49 per cent in August and the rate has remained over 9 per cent since March 2023.
The rise in the policy rate means that the country鈥檚 commercial banks will have to pay more interest if they borrow money from the Bangladesh Bank.
The policy rate or repo hike is expected to raise banks鈥� lending rates, which in turn would reduce the demand for loans and fund flow on the financial market, thus mitigating inflationary pressures.
On May 8, the central bank introduced a crawling peg system for the currency to address the depreciation of the Bangladesh currency taka against the US dollar and its impact on domestic inflation.
This system aims to regulate abnormal fluctuations in the taka鈥檚 value, paving the way for a fully flexible exchange rate regime in the future.
After the introduction of the system, the local currency taka depreciated against the US dollar by Tk聽7 in a day to Tk 117 each. Gradually, it has reached Tk聽120 a dollar.
The foreign exchange reserve, as per International Monetary Policy guidelines, depleted to $19.38 billion on September 18.
Since mid-2022, the Bangladesh taka has been depreciating against the US dollar, which contributed to domestic inflation, as the cost of imports has risen.
The taka has been weakening due to a balance of payments deficit leading to a significant reduction in foreign exchange reserves over the years.
