BB withdraws interest rate spread limit

Bangladesh Bank (BB) today withdrew the 4 percent interest rate spread limit as the banking regulator introduced a new lending rate formula in July this year.

The BB lifted the spread limit as part of its move to gradually liberalise the new interest rate regime following the introduction of SMART (the six-month moving average rate of treasury bills), under which banks can impose a 3.75 percent margin on SMART.

The relaxation will enable banks to offer interest rate on deposit as per their own requirement, said a top official of a private bank.

The new interest rate formula has helped keep the interest rates of all kinds of loans at a logical level and maintain a tolerable deposit rate, the central bank said in a notice.

As a result, there is no need for a limit on the intermediation spread of interest rate among loans and deposits, it said.

The SMART has been continuously rising due to the increasing interest rate of treasury bills. The SMART was 7.43 percent in November.

The banking watchdog in May of 2018 directed banks to maintain a 4 percent interest rate spread for loans and deposits. Prior to 2018, the spread limit was more than 4 percent.