Banks in Bangladesh have begun reducing deposit interest rates even though inflation remains above 9%, widening the gap between returns on savings and the rising cost of living.

Bankers say strong deposit growth, excess liquidity in the banking sector, and weak demand for loans have reduced the need to attract new deposits by offering higher interest rates.

They also cite recent policy changes by Bangladesh Bank, including a lower policy rate and a cap on the interest rate spread, as key reasons behind the latest cuts.

Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, said declining yields on Treasury bills and government bonds, along with abundant liquidity and healthy deposit growth, have reduced banks’ incentive to offer higher returns on deposits.

“Interest rates on Treasury bills and government bonds are now lower than before. Banks have excess liquidity, and deposit growth remains strong. I believe deposit interest rates will eventually fall below the inflation rate,” he said.

Mahbubur also noted that Bangladesh Bank has instructed banks to keep the interest rate spread within 4%, prompting lenders to lower both lending and deposit rates, with deposit rates being adjusted first.

Mohammad Ali, Managing Director of Pubali Bank, said higher deposit rates had previously helped banks attract more savings.

“Depositors were offered attractive returns earlier, resulting in healthy deposit growth. However, leading commercial banks now have surplus liquidity and weak credit demand. As a result, they no longer need to offer higher rates and have already begun reducing deposit interest rates,” he said.

Another managing director of a commercial bank, speaking on condition of anonymity, said depositors are increasingly choosing financially stable and reputable banks rather than simply chasing higher interest rates.

He added that if banks succeed in lowering their funding costs, they are likely to increase investments in Treasury bills and government bonds.

However, he noted that weaker banks still need to offer comparatively higher deposit rates to attract customers.

According to Bangladesh Bank data, surplus liquidity in the banking sector rose to Tk 327,877 crore in May 2026, up from Tk 235,500 crore in the same month of 2025.