Why are banks cutting deposit interest rates despite high inflation?
Bankers say strong deposit growth, excess liquidity and weak demand for loans have reduced the need to attract new deposits with higher interest rates.
Banks have begun reducing deposit interest rates even though inflation remains above 9%, widening the gap between returns on savings and rising consumer prices.
Bankers say strong deposit growth, excess liquidity and weak demand for loans have reduced the need to attract new deposits with higher interest rates.
They also point to Bangladesh Bank's recent policy changes, including a lower policy rate and limits on interest rate spreads, as factors behind the latest rate cuts.
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Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said lower yields on Treasury bills and government bonds, combined with abundant liquidity and healthy deposit growth, have reduced banks' need to offer higher deposit rates.
"Currently the interest rates on Treasury bills and bonds are lower than before. Banks have excess liquidity, and deposit growth is good. I think deposit interest rates will fall below the inflation rate," he said.
Mahbubur said Bangladesh Bank has instructed banks to keep the interest rate spread within 4%, prompting lenders to reduce both deposit and lending rates, although deposit rates will be adjusted first.
Mohammad Ali, managing director of Pubali Bank, said higher deposit rates have previously helped banks attract savings.
"Depositors received attractive deposit rates earlier, and as a result deposit growth reached a satisfactory level. But leading commercial banks now have excess liquidity and weak credit demand. So banks have moved away from offering higher rates to depositors and have already reduced deposit rates," he said.
Another managing director of a commercial bank, speaking on condition of anonymity, said depositors are increasingly choosing financially credible banks rather than chasing higher interest rates.
He added that if banks can reduce their funding costs, they will increase investment in Treasury bills and government bonds.
However, he noted that weaker banks still need to offer relatively high deposit rates to attract deposits.
According to Bangladesh Bank data, surplus liquidity in the banking sector rose to Tk3,27,877 crore in May, up from Tk2,35,500 crore in the same month of 2025.
