Rejaul Karim Byron

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Bangladesh Bank yesterday withdrew the 13 percent lending cap except on agricultural and industrial term loans.

The International Monetary Fund (IMF) and the owners of private banks had long been putting pressure on the government to lift the cap.

However, central bank officials said the BB took the decision on its own, not due to any pressure.

Salehuddin Ahmed, the immediate past governor of the central bank, said the move may give a rise to the costs of business. The BB could have taken the decision later, he added.

A BB circular yesterday said the decision to lift the lending cap was taken after reviewing the overall situation. However, the 13 percent lending cap would remain in force for the agricultural sector and industrial term loans.

The circular said all other types of export credit interest rate will be 7 percent; and the interest rate on import finance for rice, lentil, edible oil, gram, onion, date and sugar would remain at 12 percent.

It also said, under the financial sector reform programme, the policy of flexible interest rate was introduced in 1989 which allowed the banks to determine their rate of interest.

In the backdrop of the world economic situation, the central bank set the lending cap on some sectors, said the circular.

In April 2009, the lending cap was put in force.

The IMF last year tagged 10 conditions with its $1 billion credit which include withdrawal of the lending cap by March this year. The IMF said the conditions were aimed at strengthening the monetary transmission mechanism and improving the financial sector performances.

The government and the IMF are continuing talks on the conditions. An IMF mission has already started final discussion with the government from Tuesday and is scheduled to continue until March 18.

On the other hand, the owners of the private banks on March 2 put forward a 14-point recommendation to the prime minister, demanding withdrawal of the lending cap to help overcome financial crisis of the banks.

On March 3 they placed the recommendations to the central bank. The BB is now reviewing those.

The former BB governor said, due to liquidity crisis the banks have already hiked their deposit rates. To cut down costs of fund they have now recommended withdrawal of the lending cap.

Besides, there is a pressure from the IMF, Ahmed said.

In another circular, the BB issued reminder to the banks to hang the interest rates of deposit and credit and all other service charges at their head offices and all branch offices.

News: Daily Star/ Bangladesh/ Mar-10-2011