সুদের হার আর টাকার মান Interest rates & the taka

Two numbers touch the profit of nearly every company in Bangladesh: the interest rate, and the price of the taka against the dollar. This lesson shows how, and which sectors move which way.

Both are set or influenced by Bangladesh Bank, which is why the market moves on a central bank announcement. It is a mechanical relationship, not a mystery.

What a rate rise does

The pressure arrives along two separate paths, and they work together.

The first: the alternative gets attractive. If treasury bills go from 6% to 11%, the case for holding risky shares weakens. People sell shares for safety and the price falls. For the same reason a reasonable P/E comes down.

The second: the company's interest bill rises. A company with 300 crore of debt paying 2% more owes an extra 6 crore a year, straight out of profit. If profit was 60 crore, that is a 10% cut with nothing about the business changing.

Who wins and loses when the taka weakens

Not everybody moves the same way here, and that is the most useful part of this lesson.

A company selling in dollars and paying costs in taka sees its revenue rise. Ready-made garments, leather, pharmaceutical exports and IT services sit on this side.

A company buying in dollars and selling in taka sees costs rise with limited room to raise prices. Cement, steel, fuel, edible oil and pharmaceutical raw materials sit on that side.

Banks and insurers are different

One exception is worth knowing, because banks and insurers are a large part of DSE.

Interest is a bank's business: taking deposits cheaply and lending dearly. So a rate rise is not straightforwardly bad news for one; the question is whether the gap between the cost of deposits and the income from loans, the net interest margin, is widening or narrowing. Some banks can reprice loans quickly and deposits slowly, so their margin widens.

There is a second effect that often outweighs the first: at higher rates borrowers struggle with instalments, so bad loans rise. Bad loans are already a large problem in Bangladesh, so bank shares behave inconsistently through a tightening cycle. For insurers, higher rates are usually good, because their invested float earns more.

The two travel together

One thing worth remembering: interest rates and the exchange rate are not separate events, they are usually two faces of one.

When the taka falls, imports get dearer and inflation rises. To fight inflation, Bangladesh Bank raises rates. Higher rates support the taka somewhat and slow the economy. So when you read that the taka has weakened, expect a discussion about rate rises within a few months.

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