Dr. Zahid Hussain, Lead Economist, World Bank:
The lending rates cannot be reduced by issuing threats. It is not possible to cut lending rates by merely issuing directives to the banks unless we effectively address the fundamental reasons behind high lending rates. Liquidity crunch has a role to play behind the trade deficit. Bangladesh Bank is selling dollars and resultantly money is going out of the market. Default loans might have an impact on the liquidity crisis.
You repeatedly take loans from banks without repaying. Banks would be hard-pressed due to soaring default loans.
Our deposit growth is very shaky. Interest rates on savings certificates remain high for many days while the deposit rates have gone down. There will have no deposit in the banks if interest rates on savings certificates are not reformed.
Bangladesh Bank should use its all the instruments required for a monetary policy. For instance, treasury bills used for repo (repo is a short-term fund that the central bank gives to commercial banks in case of cash shortfall) and short-term bonds which are issued should be made available in the market. The government is benefitting from selling savings certificates. Banks do not have the need to receive money after selling treasury bills. The opposite is happening in this regard. The treasuries, which have matured, are not required to be renewed.
The instruments of monetary policy are found wanting. Therefore, policy reform of saving certificates has turned out to be an urgent need. It will help execute the monetary policy properly, which is now emerging as an obstacle. On the other hand, the gap in interest rates between deposit and savings certificates should be narrowed down. Otherwise, people will not deposit money in the banks.
It is due to the high interest rates for which people prefer saving certificates. Issuing treasury bills is not necessary here as the government is profiting from savings certificates. It has become difficult to conduct policy for not issuing treasury bills.
Based on an interview by Ashiq Rahman, translated by Hossen Sohel