The World Bank Group’s Doing Business 2019 report highlighted the significance of initiatives and favorable reforms such as decreasing the lending rate to boost the ease of doing business in developing countries like Bangladesh, Vietnam, and Malaysia. For example, with continuous investment in the service sector and incentivization to the MSMEs, the Bangladeshi government has been working towards inclusive development of the nation. Recently, the government announced capping of interest rates on deposits at 6 per cent and on loans at 9 per cent.
However, owing to the inflation rate, which is now close to 6%, this step has been questioned. At a recently concluded programme titled, “Bangladesh Economic Conference 2020”, issues about financial instability in the country were brought to the public notice by the experts.
Capping lending rate would impact both depositors’ money and banks’ deposit growth badly, reducing the lenders’ investment capacity, experts said at the program held at Pan Pacific Sonargaon Hotel in Dhaka, which was inaugurated by Finance Minister AHM Mustafa Kamal as the chief guest. The conference also had Salman F Rahman, Private Sector Industry and Investment Adviser to the Prime Minister Sheikh Hasina present as the special guest.
The conference was jointly organized by Bangla daily Bonik Barta and City Bank to mark the 100th birth Centenary of the Father of the Nation, Sheikh Mujibur Rahman.
There could be a limitation on the number of fixed deposit products (FDRs) as banks will not pay out more than 6 per cent interest to the depositors. Due to the high fiscal deficit, the government borrowed from banks by issuing T-bills and bonds, which has now resulted in an increasing trend of interest rates on government tools. This could make the financial sector unstable, said Zahid Hussain former lead economist of the World Bank’s Dhaka office.
Some points were also raised on the functioning of the Central Banks. Finance Minister AHM Mustafa Kamal agreed that the banking sector is not functioning well but he also assured that the government is working hard for a sound banking sector. Banks should avoid calculating compound interest rates as otherwise, industrialization is not possible, he asserted.
Salman F Rahman said, “Now we are a digitized Bangladesh under the leadership of Prime Minister Sheikh Hasina.” “We have many challenges but at the same time we have also many success stories,” he added.
Nevertheless, constructive conferences like these can improve the existing policies and should only strengthen the upcoming initiatives and policies from the government.