The central bank has withdrawn the cap on lending rate in all sectors barring two - agriculture and industrial term loan, officials said.
Such a capping was enforced by it nearly two years back, officials said.
"We've withdrawn the lending rate cap in some sectors aiming to facilitate the country's overall economic growth through boosting investment in real sectors," General Manager Banking Regulation and Policy Department (BRPD) KM Abdul Wadood told the FE Wednesday.
He also said the banks will have the operational freedom to deploy their loan-able funds in productive sectors including industries and service sectors.
The central bank, issued a circular in this connection Wednesday.
The Bangladesh Bank (BB) through the circular instructed the chief executives of all commercial banks to follow properly the latest directive on lending rate ceiling in specific areas.
Bankers welcomed the BB's latest move, saying the lending rate ceiling "created distortions in the financial market."
"It's a positive step of the central bank taken to manage the country's macro-economy properly," Chairman of the Association of Bankers Bangladesh (ABB) K Mahmood Sattar told the FE.
The Chief Executive Officer and Managing Director of the Mutual Trust Bank, Anis A. Khan said: "It will help the banks to come back again on track."
On April 19, 2009 the central bank asked the commercial banks to enforce the ceiling on lending rate in five specific areas at 13 per cent to help mitigate the impact of the then global economic meltdown.
The five areas for which a ceiling on lending rate was then fixed were: agriculture, term loan to large and medium-scale industries, working capital to large and medium-scale industries, housing, and trade financing.
With a view to establishing a market-oriented financial system under the Financial Sector Reforms Programme (FSRP), the administered interest rate regime was earlier abolished giving the banks full freedom for selection and management of their credit portfolios.
The central bank introduced in 1989 a flexible interest rate regime through issuance a circular in line with the FSRP.
Under the FSRP, the banks are free to charge or fix their deposit and lending rates excepting the rate of interest on export credits.
"Now banks are free to fix their lending rates with some exceptions only," another BB official said on Wednesday.
Credits at a reduced rate of interest --, 7.0 per cent - are being provided in all areas of export credit operations since January 2004, he said, adding that it will remain unchanged.
Besides, the lending rate on import financing for eight essential food items at a maximum of 12 per cent will remain unchanged, according to the central bank circular.
The essentials are: edible oil, gram, pulses, peas, onion, date, fruits and sugar.
But the name of spices has been dropped in the latest list, which was included a BB circular issued on February 14 last.
"We've taken the move to help ensure smooth supply of the essential items to the local market," the BB official said, adding that the consumers will get the benefit of this measure.
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