The much-talked-about lending rate ceiling is set to go as the Bangladesh Bank intends to introduce a market-driven reference lending rate.

The move aims to enhance competitiveness in the banking sector and foster a favourable lending environment for businesses and individuals, said the central bank while announcing a contractionary monetary policy for the first six months of the upcoming fiscal year.

With this, the central bank shifted away from the cautious monetary policy stance it has maintained since January.

The BB said in order to curb inflationary pressure, it would tighten its grip on the money supply in the economy by hiking the policy rate by 50 basis points to 6.5 per cent.

The central bank said the reference lending rate, known as SMART (Six-month moving average rate of treasury bills, will be announced on a monthly basis through its website with a margin applied for banks and non-bank financial institutions.

In practice, SMART plus a margin of up to 3 per cent will be applicable for banks and SMART plus a margin of 5 per cent will be applicable for NBFIs, it said.

"However, lending activities for cottage, micro, small and medium enterprises and consumer loans may be subject to an additional fee of up to 1 per cent to cover supervision costs and there will be no change in the interest rates applicable to credit card loans," the BB said.

The central bank has maintained a 9 per cent ceiling on loans since April 2020.

In January, the BB increased the lending rate cap for consumer credit to 12 per cent and removed caps on credit card loans.

However, these categories represent only about 20 per cent of overall private sector credit, according to the World Bank.