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BB eases cost of loans

Repo rate down 25 basis points

Sajjadur Rahman
The central bank yesterday slashed the interest rate it charges on loans to commercial banks by 25 basis points to 8.50 percent to bolster growth and cushion the impact of the global economic turmoil.
“The decision to cut the shortterm repo rate has been taken to encourage commercial banks to lend at a lower interest rate." said Bangladesh Bank (BB) Deputy Governor Saul Hasan Siddiqui.
He hoped banks now will lend the private sector at a cheaper rate.
Private sector businesses have long been demanding that the authorities cut the interest rate, which they said was hampering the expected economic growth.
The BB initiative will inject more liquidity to the market, which has been on a decline for the past few weeks, according to BB officials. The repo rate cut will lead to a reduction in loan interest rates,
they said.
Earlier in a measure to limit liquidity expansion and keep inflation under control, the BB raised the repo rate (money sale rate) from 8.5 percent to 8.75 percent on September 17 last year after a period of more than three years.
The private sector credit growth reached 27 percent at the end of September 2008. Credit disbursed by private commercial banks increased by 38 percent during the first quarter of the current fiscal year.
The private sector credit growth decelerated to 24.3 percent in December. Industrial term loans also declined in the recent months. According to BB statistics, net disbursement of industrial term loans stood at Tk 1,073 crore during the first quarter of FY09 compared to Tk 1,661 crore in the previous quarter.
The global financial turmoil has also started biting the economy with an expected reduction in remittances and exports, the two main foreign currency-earning
sectors in Bangladesh. Three-fourths of the country's exports arc of apparel and destined to the troubled US and European economies.
The global crisis has also made the country's investors shaky. Even the businesspeople seem less interested to import due to a huge fall in prices of commodities on internationalmarkets.
"A cut in repo rate means reduction in borrowing cost, which will
ultimately benefit the private sector,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.
Chowdhury said: “Now we will get better returns from our investment in other sectors than that in the central bank."
He said the BB move would help the private sector come up with new investment projects.
sajjad@thedailystar.net