REUTERS

DHAKA BANGLADESH’S central bank has lifted the interest rate ceiling on bank loans used for importing commodities and setting up industries, the bank said in a statement on Thursday.

The decision will allow commercial banks to decide the rate of interest on loans they offer to facilitate imports and industries, and also to discourage loan seekers.

“From now on there will be no ceiling on imposing interest on loans and the commercial banks will be able to fix the rate of interest,” the statement said.

In March last year the central bank set the rate of interest at 12 percent for lending to fund the import of rice, wheat, edible oil, pulse, gram, onion, dates and sugar.

It also set the interest rate on industrial term loans, along with agriculture loans, at 13 percent and the interest rate for loans on all export sectors at 7 percent.

Now banks will be able to negotiate the interest rate with the borrowers from the industrial sector and traders of essential commodities, a central banks official said.

“It is not justified to set cap on interest on loans in a free market economy and it is contradictory of the policy that we follow,” said Atiur Rahamn, governor of the central bank.

“The measure will help to contain ever increasing inflation as businessmen and entrepreneurs will be more cautious in taking loan from the banks,” he told Reuters.

He also said the central bank would monitor the rate to stop it from rising abnormally.

The official said the central bank withdrew the interest rate cap as part of its plan to tighten private sector credit growth.

The central bank plans to bring down private sector credit growth to 16 percent by June in a bid to reduce pressures on the exchange rate and to contain inflation.

The lending cap withdrawal also aims to stop the devaluation of the taka, which traded against the dollar between at 82.20 and 82.45 taka on Thursday against 70.95 a year ago, according to the central bank.