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Bangladesh hikes key interest rates

Staff Correspondent

DHAKA (AFP) – Bangladesh's central bank hiked interest rates by 50 basis points on Wednesday, a week after the country's finance minister warned that tough moves would be taken to control inflation.

The Bangladesh Bank raised the country's repo rate -- at which it lends to commercial banks -- half a percentage point to 6.75 percent and its reverse repo rate -- what it pays banks for deposits -- to 4.75 percent.

Rates were hiked because "core inflation is in a rising mood," Sultana Razia, general manager of the bank, told AFP.

It is the third time in four months the bank has raised interest rates and follows recent data showing that inflation in April was 10.67 percent, a 31-month high, driven by soaring food prices.

The increase comes a week after the finance minister warned he would not shy away from "unpopular and tough" decisions, including raising interest rates, to cope with inflation and rising global oil prices.

But for Ahsan H. Mansur, a former International Monetary Fund official and the head of the Policy Research Institute think-tank in Dhaka, the move may be too little, too late.

"Unlike the Reserve Bank of India, the Bangladesh Bank's response to inflation has been timid. The latest hike shows they are becoming a bit more aggressive," he told AFP.