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BB raises policy interest rate to control inflation

Published : 29 Sep 2022 09:49 PM

Bangladesh Bank has increased the policy interest rate (repo rate) by 25 basis points to 5.75 per cent from 5.5 per cent to curb inflation.

The central bank took the decision at the 56th meeting of the Monetary Policy Committee (MPC) held on Thursday.

In view of the increase in inflation in the world market, Bangladesh is also witnessing rising inflation.

In order to control it, the committee increased the overnight repo rate by 25 basis points, which will be effective from October 2 (Sunday).

The reverse repo rate will remain unchanged at the existing 4.00 per cent, said a notification of the central bank.

The repo rate is the key monetary policy rate of interest at which the central bank lends short-term money to banks, essentially to control credit availability, inflation, and economic growth.

The BB notification stated that despite the strengthening of the economic recovery after the impact of the Covid-19 pandemic, the imbalance between global demand and supply still exists as supply chain problems caused by the ongoing Russia-Ukraine war has worsened.

As a result, since the beginning of 2021, most of the commodity prices in the global market have surged.

The world’s top economy the USA has also increased the policy interest rate to control inflation. Global prominent economists have warned a new recession is coming from the supply chain disruption erupted from the Russia-Ukraine war.

Earlier on 29 May the Bangladesh Bank raised its key interest rate for the first time in a decade and devalued the local currency for the seventh time this year against the dollar as part of its moves to tackle inflationary forces and restore stability in the foreign exchange market.  

The BB interest or policy rate, which is termed the repurchase agreement (repo), is a pivotal benchmark interest rate followed by commercial banks to set the interest rates on both loans and deposits.

Hiking the repo rate means the taka will be costlier, which will subsequently help contain inflation.