Businesses and economists divided over lifting lending rate cap

While the economists urged the Bangladesh Bank to withdraw the cap on the lending rate and hand it over to the market, businesses opposed it saying that the move would hurt small and medium enterprises the most.

They made the comments at a dialogue hosted by the Editors Guild with its president Mozammel Babu in the chair. The event was broadcasted live on 71 TV.

Senior economist and former governor of Bangladesh Bank Dr Mohammed Farashuddin criticised the central bank for controlling the exchange and interest rates.

“Nine percent lending rate cap should be withdrawn and handed over to the market mechanism,” Farashuddin said. He was also supported by Ahsan H Mansur, executive director of Policy Research Institute, on moving away from the 9 percent ceiling as inflation is nearing 9 percent.

Responding to Farashuddin’s observations, Faruque Hassan, president of BGMEA, said if the lending rate is withdrawn now, small and medium enterprises will suffer the most.

“If the cap is lifted and the lending rate is hiked, there will be no problem for large companies to get the loans even at 8 percent. But SMEs will be hit hard,” Hassan said.

When the Covid-19 pandemic hit the country in March 2020, the central bank in consultation with the government put a maximum ceiling on the lending rate at 9 percent so that money flows remain unaffected amid the onslaught of the pandemic.

But after more than two and a half years, the adoption of the interest rate policy still remains there, which made many economists and bankers term it as ‘absurd’ as inflation exceeds well over 8 percent.

“The absurdity of this policy is indicated by the fact that domestic inflation now exceeds 9 percent, whereas the maximum lending rate has been capped at 9 percent, indicating that the real lending rate has now become negative,” said Dr Sadiq Ahmed, a former top official of the World Bank, in a recent article published in a leading national English daily. 

Farashuddin also said if the Bangladesh Bank had depreciated the taka gradually, it would not have had to face the present challenge.

Dr MA Sattar Mandal, an agricultural economist, Dr Selim Raihan, executive director of SANEM, and Dr Nazneen Ahmed, country economist of UNDP Bangladesh also spoke on the occasion.