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Bangladesh Bank raises repo rate to 5.75% to dampen inflation

Bangladesh Bank raised the repo rate – the interest rate at which banks borrow short-term funds – by 25 basis points to dampen inflation and curb exchange rate pressure in the country. In view of the increase in inflation in the world market, inflation is also increasing in Bangladesh.

Bangladesh Bank raises repo rate to 5.75% inflation
Figure: Bangladesh Bank raised the repo rate – the interest rate at which banks borrow short-term funds – by 25 basis points to dampen inflation. Courtesy: Collected

The overnight repo rate has been raised to 5.75% from 5.50%, Bangladesh Bank said in a notification on its website on Thursday and the new rate change will come into effect from October 2. The decision to raise rates comes just three months after a previous attempt to use the measure to curb inflation. The reverse repo rate will remain unchanged at the current 4.00%, the central bank also said in the notice.

Before the rate hike in the past few months, it had been unchanged for nearly two years. The central bank lowered it by 50 basis points in July 2020 to ensure cash flow amid the coronavirus lockdown. Inflation was also under control.

The move comes amid a currency slowdown due to rising inflation concerns and expensive imports, which also led to a decline in foreign exchange reserves. In June, inflation in Bangladesh rose 7.56 percent year-on-year, the highest in nine years. It fell slightly to 7.48 percent in July.

Many central banks around the world have also raised their key policy rates in an attempt to control global inflation recently. The US Federal Reserve raised interest rates by 75 basis points for the third time in a row, and hinted even bigger hike in new projections.

The Bank of England raised its key interest rate to 2.25% from 1.75% last week and said it would continue to respond forcefully as needed to curb inflation. The Reserve Bank of India also raised the repo rate by 50 basis points to 5.90% from 5.40% last Friday.

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