The Bangladesh Bank (BB) has removed the interest rate cap on Resident Foreign Currency Deposit (RFCD) accounts, allowing banks to set their own rates for these savings accounts.

The central bank announced this policy change on Wednesday, aiming to provide more flexibility for financial institutions in determining interest or profit margins on foreign currency deposits.

RFCD accounts are savings accounts that Bangladeshi residents can open to hold foreign currency obtained during travels abroad. Previously, banks were required to calculate interest rates for these accounts by adding 1.5 percentage points to the international Secured Overnight Financing Rate (SOFR). With the SOFR currently standing at 5.3%, account holders were receiving 6.8% interest under the former system.

The removal of the cap now empowers banks to set interest rates based on their own financial strategies and market conditions. In its notification, the Bangladesh Bank did not impose new restrictions, indicating a liberalized approach to managing these foreign currency accounts.

Depositors can place foreign currency in RFCD accounts if declared to customs or up to $5,000 if brought into Bangladesh without a declaration. However, the regulation maintains that income from the export of goods or services from Bangladesh or commissions earned through local business transactions cannot be deposited into these accounts.

This policy shift is seen as a move to improve the competitiveness of banks and encourage better financial management, especially as global financial markets evolve. Bankers and financial analysts are likely to monitor how this change will impact foreign currency deposits and overall market dynamics.