Rejaul Karim Byron

Bangladesh Bank (BB) yesterday increased repo and reverse repo rates by 0.25 percentage points -- the second attempt in about one and a half months -- to rein in credit growth and inflation.

The central bank increased the interest rate on repo to 6.25 percent, which was 6 percent earlier.

The repo rate is the interest rate at which the central bank lends money to commercial banks. The reverse repo rate is the return banks earn on excess funds parked with the central bank.

The rate of interest on reverse repo was hiked by 0.25 percentage points to 4.25 percent. A central bank circular said the new rates of interest will come into effect from today.

Earlier, on March 13 repo and reverse repo were increased by 0.5 percentage points. On December 15 last year, BB increased the cash reserve requirement (CRR).

The central bank has taken the step at a time when both inflation and credit have been continuously increasing despite taking different measures.

According to Bangladesh Bureau of Statistics (BBS) data, in March overall inflation crossed the double-digit mark and reached 10.49 percent which was 9.79 percent in February.

In the rural area food inflation was 14.84 percent in March which was 11.66 percent in urban areas.

For lowering inflation Bangladesh Bank took steps to contain the private sector's galloping credit growth. In February, private-sector credit growth was 28.34 percent which was 27.58 percent in December last year.

In July last year, in the first Monetary Policy Statement (MPS) of the current fiscal year, BB set a target of cutting down private sector credit growth to 16 percent by June 2011 from 24 percent in June 2010.

The bankers said the moves will make credit costlier. In January, BB indicated repeatedly in MPS that it will hike the policy interest rate to contain inflation.

“There is no magic bullet to contain inflation. It must be addressed by overall macroeconomic management,” Dr Debapriya Bhattacharya, CPD distinguished fellow, said yesterday during a briefing on the upcoming budget.

News: The Daiy Star/ Bangladesh/ Apr-27-2011