The Financial Express

Interest rate spread widens in May

| Updated: July 12, 2021 20:09:55

Interest rate spread widens in May

The interest rate spread widened significantly in May, 2021 as the banks cut their deposit rates further while lending rates remained unchanged, bankers have said.

The weighted average spread between the lending and deposit rates, offered by the scheduled banks, rose to 3.26 per cent in May from 3.04 per cent a month ago. It was 3.05 per cent in March 2021.

The weighted average interest rate on deposits fell to 4.14 per cent in May 2021 from 4.36 per cent in the previous month while such rate on lending remained unchanged at 7.40 per cent, according to the latest statistics of Bangladesh Bank (BB).

Most of the banks have already slashed their interest rates on all types of deposits because of the higher inflow of liquidity in the market, affecting the savers, particularly the small ones seriously, according to the senior bankers.

"The total value of deposits has decreased gradually after adjustment of the inflationary pressure on the economy," a senior executive at a leading bank told the FE on Sunday.

Meanwhile, the inflation as measured by consumers' price index (CPI) came down to 5.59 per cent in May, 2021 on an annualised average basis from 5.60 per cent a month before, according to the Bangladesh Bureau of Statistics (BBS) data.

The banker also expressed the apprehension that the funds would be diverted to the capital market as well as national savings certificates if the lower deposit rates continue.

"The overall interest rate spread may widen further in the coming months if the banks slash their interest rates on deposits continuously," he predicted.

The bankers also predicted a further fall in the interest rates on fresh deposits in the coming months if the lower demand for credit, particularly in the private sector, continues due to the ongoing pandemic.

The private sector credit growth came down to 7.55 per cent year-on-year in May, 2021 from 8.29 per cent a month before because of the second wave of the Covid-19 pandemic in Bangladesh.

The falling trend in the private sector credit was still continuing as the businesses were following a 'go-slow' strategy to avert possible risks, they explained.

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