In response to rising concerns among businesses over fluctuating interest rates, the Bangladesh Bank (BB) is contemplating using moral suasion to cap the maximum lending rate at 14%. 

This strategy represents a significant shift in policy, aiming to prevent banks from exploiting the newly adopted market-oriented interest rate regime.

Moral suasion is a non-coercive policy tool used by central banks to influence the behavior of commercial banks. It involves using verbal gestures, signaling, and public statements to guide banks toward desired outcomes without formal regulations. 

The mechanism relies heavily on the central bank’s authority and credibility to persuade banks to adhere to certain practices.

This approach is designed to maintain control over the economic environment and reassure the public and financial institutions that the central bank is prepared to intervene if necessary.

The shift towards a market-driven interest rate regime has raised fears among businesses of an abnormal rise in lending rates. 

A Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) delegation, led by President Mahbubul Alam, recently met with BB Governor Abdur Rouf Talukder to express these concerns. They stressed the need for stable policy frameworks, as fluctuating interest rates, exchange rates, and other economic factors can disrupt business planning and operations.

In response, Governor Talukder assured the delegation that lending rates would not exceed 14%. This assurance comes as the central bank evaluates the potential use of moral suasion to enforce this cap.