Bangladesh Banks Cut Deposit Rates Below Inflation: Savers Face Negative Returns

Dhaka, August 4, 2026 — Most leading commercial banks in Bangladesh have cut deposit interest rates by 50 to 100 basis points from the beginning of August, pushing returns further below inflation as excess liquidity and weak private-sector credit demand reduce the need to attract fresh deposits.

The rate adjustments follow broader policy shifts, including Bangladesh Bank's recent decision to cut the policy rate from 10% to 9.50% after nearly two years, and to enforce interest rate spread caps. As a consequence, banks have lowered lending rates as well — but it is depositors who are bearing the immediate cost of the easing cycle.

⚠️ The Cost to Savers

With overall inflation standing at 9.16% in June, the fresh round of rate cuts will drag deposit yields down to 8.50-9%, down from the 9-10.15% range offered through July. As a result, depositors face negative real returns — meaning the interest they earn on savings is insufficient to keep pace with rising prices, eroding the purchasing power of their deposits over time.

According to Bangladesh Bank's latest banking sector update, real deposit interest rates have remained persistently negative. Official data show deposit growth reached 11.41% in May, a performance bankers attribute to previously attractive deposit rates. However, industry leaders warn that reducing deposit rates while inflation remains elevated could eventually discourage savers — with potentially serious consequences for the banking system's funding base.

💬 Why Banks Are Cutting Rates

"High deposit rates create massive future liabilities, which is why banks are moving to lower their cost of funds," said a senior executive at a private commercial bank, speaking on condition of anonymity. He added that yields on Treasury bills and government bonds had softened, squeezing banks' margins and reducing the incentive to offer 10% returns on one-year deposits.

Toufic Ahmad Choudhury, former director general of the Bangladesh Institute of Bank Management (BIBM), questioned the central bank's policy decision directly. "The question is why the central bank has decreased the policy rate? It is not a prudent decision anymore. Depositors are not getting real interest rates due to high inflation," he told The Business Standard.

Despite the continued erosion of purchasing power, bankers said depositors are still prioritising the safety of their funds over higher returns, helping deposits remain stable for the time being. Whether that stability persists if rates fall further — or if inflation accelerates again — remains an open question.

💰 Excess Liquidity Weakens Banks' Appetite for Deposits

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said lower yields on Treasury bills and bonds, combined with abundant liquidity and healthy deposit growth, had reduced banks' need to offer high deposit rates. The combination has given banks the room to cut deposit rates without immediately losing deposit share to competitors.

"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," Mahbubur said. He added that Bangladesh Bank had instructed banks to keep the interest rate spread within 4%, prompting lenders to reduce both deposit and lending rates — though deposit rates would be adjusted first.

Mohammad Ali, managing director of Pubali Bank, framed the rate cuts as a natural market response to changing conditions. "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 could reduce their funding costs, they would increase investment in Treasury bills and government bonds — though weaker banks still needed to offer relatively high deposit rates to attract deposits.

📊 Surplus Liquidity Hits Record Levels

Bangladesh Bank data quantify the scale of the liquidity overhang driving the rate cuts. Surplus liquidity rose to Tk 3,27,877 crore in May 2026, up from Tk 2,35,500 crore in the same month of 2025 — an increase of roughly 39 percent year-on-year. This excess liquidity has reduced competitive pressure among banks to attract deposits, allowing them to cut rates without losing funding.

• 💰 Surplus liquidity (May 2026): Tk 3,27,877 crore
• 💰 Surplus liquidity (May 2025): Tk 2,35,500 crore
• 📈 YoY increase: ~39%
• 💲 Inflation (June 2026): 9.16%
• 💳 New deposit yield range: 8.50-9%
• 💳 Previous deposit yield range: 9-10.15%

📈 Lending Income Weakens as Investment Demand Slows

Banks' earnings from both lending and government securities have come under pressure as interest rates on Treasury instruments have eased and private-sector borrowing has weakened. According to bankers, yields on Treasury bills are now below 9%, while Treasury bonds offer slightly above 10%, compared with around 12% previously. Lower returns from government securities have reduced their attractiveness compared with the period of higher yields.

Meanwhile, sluggish private investment has continued to suppress demand for bank credit. Bangladesh Bank data show private-sector credit growth remained below 5% in May 2026, reducing banks' income from lending over an extended period. The combination of weak loan demand and falling T-bill yields has pushed banks to defend margins by cutting deposit rates — the easiest cost to adjust in the short term.

📊 Shift in Bank Income Structure

Banks' financial statements illustrate a significant shift in their income structure over the past four years. In 2021, the country's 52 major banks generated Tk 40,793 crore in total income, with lending contributing 47%, investments 34%, and commissions 19%. By 2025, investment income had become banks' largest source of revenue, accounting for 73% of total income, while net interest income had fallen to just 6.8%. Commission income remained broadly unchanged at around 20%.

• 📈 2021 income mix: Lending 47% | Investments 34% | Commissions 19%
• 📈 2025 income mix: Investments 73% | Commissions ~20% | Net interest income 6.8%
• 💰 2021 total income (52 banks): Tk 40,793 crore

The shift reflects banks' increased investment in Treasury bills and government bonds since late 2023, when yields on those instruments rose sharply. While that strategy boosted investment income during the high-yield period, the recent moderation in T-bill and bond yields is now squeezing the very income stream that banks had come to rely on — creating additional pressure to reduce deposit costs.

📋 Strategic Context

The deposit rate cuts reflect a banking sector caught between conflicting pressures: a central bank trying to stimulate credit growth through lower policy rates, weak private-sector loan demand that limits lending income, falling government security yields that compress investment income, and an inflation rate that continues to outpace deposit returns. The net result is a banking model increasingly dependent on investment income rather than traditional lending — a structure that becomes vulnerable when yields on government securities fall.

For depositors, the rate cuts mean that bank deposits are no longer keeping pace with inflation, eroding the real value of savings. The fact that deposits have continued to grow despite negative real returns suggests that savers currently lack attractive alternatives — but the persistence of this dynamic depends on inflation moderating toward the central bank's 6% target, or on alternative savings instruments becoming available. If neither materialises, the banking system's deposit base could face slower growth or outright contraction in the coming quarters.