The Bangladesh Bank has increased lending rate of banks by 50 basis points to 10.70% for the month of October.

The central bank's announced the new decision through a circular issued today (5 October) by the Banking Regulations and Policy Department.

Confirming the matter duing a press conference this afternoon, the central bank's spokesperson Md Mezbaul Haque said banks can now add 3.50% with the reference lending rate which is also known as SMART rate of 7.20%. 

At present banks can add 3% with the SMART rate which is measured by six months moving average rate of treasury bills.

For pre-shipment export loans, banks can add 2.5% with SMART, which was 2% earlier. 

The loan interest rate for the agriculture sector remains unchanged.

In the monetary policy for July-December period, the Bangladesh Bank introduced SMART to fix the lending rate. 

The policy said banks can add a maximum 3% and non-bank financial institutions (NBFIs) a maximum 5% with the SMART to fix the lending rate. In July, the SMART was 7.10%, however it has also increased by 10 basis points in two months.

The step of increasing lending rate will make the loans costlier, which may decrease the loan demand. 

The private sector credit growth in Bangladesh slumped to 9.75% in August, the lowest in 22 months, as businesses and individuals reined in borrowing amid economic headwinds and uncertainty surrounding the upcoming national elections.

According to Bangladesh Bank data, the last time private sector credit growth dipped below this figure was in October 2021 registering a growth of 9.44%.

Loans to the private sector have been declining consistently since November 2022. The credit growth was 13.97% in November 2022, which came down to 9.82% in July this year, central bank data shows.

The Bangladesh Bank increased the policy rate by 75 basis points to 7.25% on Wednesday, which was 6.50% in the previous. The hike is the decade's highest increase in a single day, aiming to make money costlier to curb inflation.

This is the second hike in three months and sixth since May last year when inflation just shot over 8% from below 6% in January 2022.