On the one hand, there was a liquidity crisis in the banks, and on the other hand, the banking sector was struggling to provide additional loans to the government as per the demand. In spite of this, the central bank kept the interest rate of the treasury bills under various strategies. But using monetary policy to rein in soaring inflation, the IMF advised raising interest rates on loans. At that time, the interest rate on six-month treasury bills increased at a ‘crazy pace’. Its interest has increased more than three and a half times in the last two years. Along with this, the interest rate of other loans has also increased. At the same time, the interest rates of other bill bonds also increased. As a result, there is now a race to increase interest in the banking sector. Borrowers are facing losses. The central bank has recognized this and given them a limited concession in installments. However, it will not bring any benefit – concerned people fear.

According to sources, as a condition of a $4.7 billion loan from the International Monetary Fund (IMF), the agency has advised Bangladesh to use monetary policy to control rising inflation. When Russia attacked Ukraine in February 2022, the supply of all kinds of goods in the international market was interrupted and the prices started to rise. Then global inflation also started to rise. In Bangladesh too, the inflation rate has risen to 9 percent, which has continued for a year and a half. The central bank continued to follow a contractionary monetary policy from the fiscal year 2022-23 to control inflation. But at that time the central bank did not increase the interest rate of loans in the market except for raising the policy interest rate. The maximum interest rate on loans in all sectors except credit cards and consumer loans is capped at 9 percent. Inflation did not decrease, on the contrary it increased. The IMF stressed the use of monetary policy to control inflation in May before the second tranche of debt was released. As a result, the central bank announced to follow a contractionary monetary policy for the current financial year as well. At the same time, it announced a corridor to increase the interest rate of loans. In this, the average interest rate of the government’s six-month treasury bill is taken as the basis for raising the interest rate. With this, the interest rate of all types of loans is being fixed from July by adding the fixed portion. Since then, interest rates on six-month Treasury bills have been rising at a ‘crazy horse’ pace. Along with this, the interest rate of other loans also started increasing.

Internationally, the loan interest rate is usually based on the six-month Treasury Bill interest rate plus some fraction. London Interbank has various instruments. Among these, six-month dollar and euro bonds are the most common at the London Interbank Offer Rate (Libor). On Tuesday, the rate was 5.66 percent. Interest is determined by adding two or three or more or less to it. Earlier the Libor rate was below one and a half percent. The six-month euro bond rate is now 4.35 percent. The secured overnight financing rate (SOFOR) in the US currency market is 5.40 percent. Earlier it was below 2 percent. Europe and the US have raised their policy interest rates to bring inflation under control. But Bangladesh could not bring inflation under control despite increasing the interest rate.

In December 2021, the interest rate on six-month treasury bills in Bangladesh was 3.19 percent. In March 2022, it slightly decreased to 3.05 percent. It then doubled to 6.44 percent in June. At that time, the demand for government loans also increased by selling treasury bills. At the same time, there was a liquidity crisis in the bank. Due to which the interest rate has almost doubled. It decreased slightly to 5.47 percent in September of the same year. In December of that year, it increased again to 7.30 percent. In March 2023, it decreased slightly to 7.01 percent. It increased again to 7.07 percent in June and further increased to 7.40 percent in September. It jumped to 11.09 percent in December. It further increased to 11.33 percent in January and 11.42 percent in February. The average interest rate in March stood at 10.55 percent. Adding 3 percent to the general loan, the interest is 13.55 percent. Till last June it was 8-9 percent. Interest on agricultural and rural loans added 2 percent to 12.55 percent, which was 8 percent till June. Interest on consumer loans was earlier 9 percent. Now it has increased to 14.55 percent.

In the 10 months from July to April, the interest rate increased by more than 4.5 to 5.5 percent. Treasury bill interest increased more than 3.5 times, central bank policy rate increased from 4 to 8 percent; But the rate of inflation has not decreased. The upside is now starting to rise again. Last month this rate increased to 9.81 percent. At the same time, US inflation fell from 9.5 percent to 2 percent. Inflation in Europe fell from 11 percent to 5 percent.

Meanwhile, liquidity in banks is decreasing. Liquidity in June 2021 was Tk 4 lakh 46 thousand crore. Now it has come down to 4 lakh 24 thousand crores. In spite of this, the government is taking additional loans. Last fiscal year, the government took a loan of 97,000 crores from the central bank in printed money. This has increased the rate of inflation. In the current financial year, instead of taking loans from central banks, they are taking loans from commercial banks. This has increased the liquidity crisis in commercial banks. In December 2021, the government’s six-month treasury bill debt status was Tk 13,870 crore. In December 2022, it increased to 18 thousand crores. In March 2023, it is another 29 thousand 200 crore taka. In June, it increased to 41 thousand 280 crores. In September it further increased to Tk 41 thousand 830 crore. In December, it again fell to 28 thousand 10 crores. Still, the debt has more than doubled.

The government has four treasury bills and five bonds in the market. These are 14, 91, 182 and 364 days maturity Treasury bills. Bonds include 2, 5, 10, 15 and 20 year Treasury Bonds. All have increased interest rates. However, the highest increase was the interest on the six-month treasury bill, which was more than 3.5 times. Interest rates on others have less than doubled.