Lowering lending rates
Bangladesh Bank has asked the commercial banks to set a lending rate ceiling in five specific areas to a maximum 13%, to minimize the adverse affects of global recession. BB Governor Atiur Rahman asked the NBFIs (Non Bank Financial Institutions) not to depend largely on bank loans and call money.
If the tax rates of financial institutions are reduced, provided they reduce both the lending rate and the prevailing IRS (Interest rate spreads) while keeping the deposit rate unchanged, still it does not work in an economy like Bangladesh.
Banks are reluctant to lower their lending rates. When banks have alternative default risk-free investment opportunities, they would not be interested in lowering their lending rates.
Moral persuasion will not work in lowering the rates. So, BB has to make its policy instruments do the job.
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