The Central Bank policy interest rate is to increase from 7% to 9% from 1 September 2024.
On 14 August 2024, the Central Bank of Myanmar (CBM) announced the increase of its policy rate from the current 7% to 9% taking effect from 1 September 2024. The rationale provided by the CBM is to address inflation, offer better deposit returns, and boost economic growth by enhancing banks’ loan capabilities.
The CBM regulates several interest rates in the market, some of these are also directly affected by the announcement.
minimum bank deposit rate - the minimum interest rate bank customers receive on their savings accounts. This is currently at 5% and will increase to 7%.
maximum bank lending rate for loans – the maximum interest rate the borrowers can be charged is 10% for secured loans and 14.5% for unsecured loans. The announcement states that the new lending rate will be 15%. It is unclear whether this only relates to secured loans or all loans.
This is not the first time that the CBM has used interest rates as a monetary policy tool. Historically, these adjustments have been made to support economic growth, particularly during times of financial difficulty or instability. For instance, in 2020, the CBM made multiple reductions in the interest rates, lowering the CBM rate from 10% to 7% in response to economic pressures exacerbated by the global pandemic. These reductions were aimed at making loans more affordable, thereby stimulating economic activities by encouraging borrowing and investments.
However, the current economic environment, characterised by rising inflation, increased bank customer withdrawals, and struggling economic growth, has prompted the CBM to take a different approach. The CBM has decided to increase interest rates to mitigate inflation and to offer better returns to depositors, which in turn is expected to strengthen the banking sector.
Raising interest rates is normally done to dampen economic activity in the market by reducing demand and consumption. Arguably a significant driver of inflation in Myanmar now is due to its currency devaluation, not because its economy is overheating, in this context using higher interest rates to reign in inflation may be a less effective policy option.
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