Impact of inflation on bank lending rates in Bangladesh

Ever since Irving Fisher (1930) provided the relationship between the expected inflation and interest rates, considerable attention has been paid to the issue. Many financial controversies and literatures have analyzed this relationship. In Bangladesh context, very less study has been done in this regard as interest liberalizations are of recent past. This study is done with an objective to unearth the influence of inflation on lending rate of commercial banks in Bangladesh. The period 2002–2011 has been considered for study. The inflation and lending rate satisfy Dickey Fuller Test. Later, the dependent variable lending rates is regressed with the independent variable inflation. The obtained residuals are again subjected to Augmented Dickey Fuller test. The result shows that the residuals are stationary, and the co-integration test proves that during the period of study, there is no significant relationship between the rates and inflation