Monday, March 30, 2020 | ePaper

Cuts in interest rates wont have much effect

  • Print
The Bangladesh Bank has made money cheaper and more cash available for banks in the wake of the withdrawal pressure amid growing concern of coronavirus that may lockdown the capital city for the time being. In a circular issued on Monday, the central bank reduced repo rate by 25 basis points to 5.75 percent and cash reserve ratio (CRR) by 50 basis points to 5 percent a year.
The new repo rate is effective from today while that of CRR will come into force from April 1. Both repo rate and CRR have been slashed to increase availability of cash in the banking system. Repo rate, also known as policy rate, is the central bank's lending rate for commercial banks. Currently, repo rate is 6 percent and average inflation in February stood at 5.60 percent. On the other hand, the reduction of CRR, the amount banks have to keep with central bank as reserves,   will save cash money for banks to invest.
But will simply using these monetary policy instruments to increase the money supply work? Firstly we are dependent on the outside world for a lot of our demand -- the policy cuts wont affect RMG buyers or remittances---which are two of the biggest sources of free cash in our economy.
Secondly, an injection of free cash in our economy wont result in a multiplying effect towards the total level of demand in the economy because our main exports--RMG is down. If the economy halts and businesses cant pay their workers because there is decreased demand for their products then it makes no sense if they can get money at cheaper rates to invest as the demand simply wont be there.
Since consumers dont take loans to spend on everyday shopping it wont affect the vast majority of them -- no one takes out a loan for lakhs of takas to buy food or hand sanitisers. Ultimately until total demand in the economy recovers the cuts in interest rates wont have much effect.

More News For this Category

Uncertainty and the risk of domestic violence

With families across the globe confined to their homes to curb the spread of the novel coronavirus, fears are rising of a surge in domestic violence. The psychological stress caused

Fear of deadly dengue outbreak this year again

A local daily yesterday reported that sporadic rain and a relatively empty capital will make an ideal breeding ground for the dengue-borne Aedes mosquitoes. Health officials of City Corporation apprehended

The Virus That Threatens Human Life

Sultan Mohammed Giasuddin :Humans have been battling viruses since before our species had even evolved into its modern form. For some viral diseases, vaccines and antiviral drugs have allowed us

Online Education An Effective Way To Continue Lesson

Gazi Md. Abdur Rashid :Online education is a form of education which is delivered and administered using the internet. Online learning is the newest and most popular form of distance

Ensure food and other essentials to marginal people now staying behind closed doors

NEWSPAPERS reported that labourers on daily wages are undergoing an acute food crisis since last Thursday after the authorities concerned went for forced leave and shut down all businesses, except

Civil servants must learn to be admirable

RECENTLY, a news report which indicated that some elderly persons were humiliated by a junior administrative cadre officer has drawn flak from different quarters. People became agitated after the officer

World War III Begins Without A single Shot

Sir Frank Peters :World War III has begun without a single shot being fired or the sight of single army camouflage uniform to blight the landscape. For the first time in

Food Safety Also Ensuring Quality & Security

Taslim Ahammad :Food safety, quality and food security are interrelated concepts with a profound impact on quality of human life. Many unregulated farm cart feed millions of people daily, street

Don`t push them to such helpless situation

AT least 30 beds for as many policemen are crammed into a dorm room of about 450sqft at Mohammadpur Police Camp in the capital. The beds are not even

Save common people from bearing some extra burden

CONSUMERS Association of Bangladesh or CAB earlier had claimed that cost of living in the country increased by 6.5 percent due to price hike of essentials like onion and