"Real interest rate on commercial lending is increasing from 2.95 percent in November 2005 to 5.71 percent in March 206. Real deposit rate showed a minor correction from negative 2.32 percent in November to negative 0.39 percent in March 2006," it reported.

The review observed that taming inflation only through increase of interest rate is an inappropriate policy preposition, since it facilitates rise of lending interest rate, but not the deposit interest rate.

As a result, though the inflation rate is declining, the commercial lending is still showing a high trend, widening the gap between commercial lending and deposit rate, it mentioned.

Econometric analysis, using monthly data for the period July 1999 to January 2006, suggests that capital machinery import as a proxy of investment is not sensitive with the change in real interest rate in Bangladesh, it added.

Few observations may be made from this result. Firstly, investors in Bangladesh are not that much concerned about the lending rate because of the unavailability of enough investment sectors, the review said.

Secondly, if the gap between lending rate and deposit rate is very high or if the expected rate of return from investment is much higher than the bank deposit rate, investors are not concerned about the high lending rate, it said.

Thirdly, developing countries are always facing problems of credit rationing for investment.

The situation is even worse in Bangladesh right now since foreign investors are also borrowing from the banking system reducing credit availability for the domestic investors.

All these may work for the insignificant relationship between lending rate and investment in Bangladesh, the IRBD said.