The country’s export sector is facing intense global competition. In addition, as loan interest rates rise, so do the costs associated with producing goods. This has made international marketplaces much more competitive.
The central bank was compelled to raise the 9 per cent lending ceiling that had been removed as of 1st July due to requirements imposed by the International Monetary Fund (IMF). The bank establishes a base interest rate or corridor at the same time to make the interest rate market-based. This means that the average interest rate of the Government’s six-month Treasury bills will be multiplied by a part set by the central bank to determine the interest rate of the loan.
The IMF urged the use of monetary policy to manage inflation in the interim. The central bank increased all interest rates, including the policy interest rate, as a result. In tandem with this, it implemented a contractionary monetary policy, which aimed to decrease the amount of money moving through the market. The past two years have been spent under this policy. As a result, the market’s money supply has shrunk and interest rates have gone up.
In the new system, the general loan interest rate has increased to a maximum of 13.11 per cent, which was 9 per cent before last July. During the same period, the interest rate on term loans in the industrial sector increased from 8 per cent to 13.11 per cent. Interest in the trade and import sector was 9 per cent till last June. Now it has increased to 13.11 per cent.
The export industry saw the largest increase in pre-shipment loan interest rates. To finance the pre-shipment of export facilitators, a Taka 10,000 crore fund was established on 1st January 2023, as a substitute for the Export Development Fund (EDF). This fund was to be used to make loans with an interest rate of 4 per cent. After multiple increases, the interest rate is at 12.11 per cent. In this industry, the interest rate has gone up by more than three times.
EDF had previously provided foreign currency loans to the export industry at a 2 per cent interest rate. At present, the interest rate stands at 4.5 per cent.
Excessive interest rate hikes have increased the cost of business and industry. Also, the increasing dollar price has played a major role in increasing the cost of doing business. Over the past two years, the dollar price has risen 28 to 48 per cent.
While the economy of the country is in recession, interest rates are being increased to combat inflation. Even before the shock of the global recession has subsided, there is an exceptional increase in interest rates that is driving up the cost of conducting business. Because of this, product prices are rising, boosting competition for Bangladeshi goods both domestically and internationally.