At Bangladesh Bank (BB) on 5 August Finance Minister said that BB would issue circular instructing banks to lend money at 9 per cent and pay depositor interest at 6 per cent per annum. I didn’t find rational of the decision. It is no doubt that single digit loan helps business to develop. But what about the depositors?
The environment where inflation is around 6% is the decision rational for all stakeholders. Let us review a hypothetical case? In current budget 2019-20 inflation has been estimated 5.5%. Indeed it would be over 5.5%. Let us see when a dipositor will deposit Tk100,000/ in a bank what depositor will get after a year? At 6% interest one will get 100,000/+6,000/ or Tk106,000/. Tk350/ will be deducted as excise duty for Tk100,000/ deposit. Tk600/ will be deducted as tax at source on interest for Tk6,000/. That is, depositor will get net Tk106,000/-Tk350/ -Tk600/ or Tk105,050/. Inflation at 5.5% will reduce purchasing power of Tk727.75 against Tk105,050/. It means, after investing Tk100,000/ for a year the depositor will not get any profit rather depositor will lose Tk727.75 net purchasing power.
Single digit leading and 6% interest on deposit only will be rational when inflation is withing 1% and tax at source on interest income will be withdrawn. BB has to make decisions to uphold interested of both lender and depositor. Otherwise depositors will lose interest to deposit money in banks. Banks will face fund crisis.
I like to urge decision makers of government to balance interest of all stakeholders and to make a rational decision.
Md Ashraf Hosssin
120, Central Bashabo , Dhaka-1214
