Bangladesh’s October Interest Rate: 10.2 Percent

In October, the interest rate on bank loans in Bangladesh was determined at 10.2 percent. This decision is based on the “SMART” mechanism introduced on July 1, 2023, by the Bank of Bangladesh.

This method calculates the rate on the basis of the six-month Moving Average Rate of Treasury Bills. Earlier, from April 2020, the maximum interest rate on bank loans was 9 percent.

Different Rates for Banks and NBFCs

Unlike banks, which are allowed a maximum interest rate of 10.20 percent on loans for industrial heavyweights in October. Non-banking financial institutions (NBFIs) have the option to charge interest against loans by adding a margin at a maximum rate of 5 percent.

This leaves the maximum permissible interest rate of NBFIs at 12.20 percent on loans. While on deposits, the rate will be 9.20 percent. However, it is important to note that the interest rate will remain unchanged for six months.

The maximum interest rate on farm loans will be set at 9.14 percent. An additional 1 percent maintenance rate can be applied to loans under some categories. These are CMSME (cottage, micro, small, and medium enterprises), personal loans, and vehicle purchase loans. In Bangladesh, the majority of the population, especially women are engaged in cottage and small industries.   

Market-Based Shift and New Dollar Policy

The Bank of Bangladesh has introduced a new dollar policy. This has limited the duration of the deposit to one year. The move is in line with the International Monetary Fund’s advice to shift to a market-based interest rate system. Interest rates benchmarked against the 6-month average of 182-day Treasury bills have changed this year, reaching 7.20 percent in September.

In April 2020, the government imposed an interest rate cap of 9 percent to support traders. However, it has been replaced to meet IMF conditions for a market-based interest rate system.