The Bangladesh government cut the interest rate it pays on savings certificates on Thursday so business lending rates could drop and savers would put money into capital markets instead, an official said.
The government had also withdrawn a five percent tax that banks had been required to deduct from interest payments, the senior official, from the ministry of finance, added.
The ministry had refixed the interest rates on five-year savings certificates at between 7.50 and 11 percent from 8.50 to 12.50 percent previously, he said.
Interest paid on three-year savings certificates had been cut to 10.50 percent from 12 percent, the official said.
The changes would affect certificates issued from Thursday.
"We took the decision to enable banks to reduce their interest rate on loans as well as to encourage small investors to invest in the capital market," Zakir Ahmed Khan, the finance secretary, told Reuters on Thursday.
The savings certificates determine market interest rates because the banks must pay at least as much to attract funds.
Banks have rejected business requests for lower interest rates because, they say, their cost of funds was too high.
The International Monetary Fund has also pressed the government for "market oriented" rates on savings certificates.
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