Inflation will get down to 8 per cent by December this year and to 6 per cent by the end of FY24, said Bangladesh Bank Governor Abdur Rouf Talukder, while expressing optimism that the country’s foreign exchange reserves will begin to rise again from June 2024.
He made these predictions to journalists at his office in the capital’s Motijheel area on Sunday. Talukder pointed out that Bangladesh is facing high inflation due to increased pent-up demand after the Covid-19 crisis, and later supply chain disruption triggered by the Russia-Ukraine war.
Providing more details, he said, “The central bank is trying to tame inflation to increase supply and reduce demand. Besides, to reduce the flow of money, funding from the regulator has been stopped to meet the budget deficit. The interest rate has been increased as well.
“I am optimistic that the move will help slash inflation from this November. We fixed the inflation target at 8 per cent in December, and it will be brought down to 6 per cent in June next year. We will take every measure necessary to achieve this goal.”
In October, inflation reached 9.93 per cent, which was the second highest in 2023.
Reserves will go up from June
In August 2021, Bangladesh's reserves reached its highest at $48 billion. In this context, the governor said there was an unusual increase of reserves in 2019 and 2020 due to Covid-19 pandemic. Reserves started to dwindle as demand picked up during post-Covid crisis period.
According to the International Monetary Fund (IMF) calculations, there are about $20 billion in reserves, which can cover the country’s import expenses for 4 months, the governor said.
He then said, “Due to the increase in international market interest rates, the debt repayment amount of Bangladesh is increasing. Our assessment is that such interest rates will start to decline from January onwards.
“As a result, the outflow of USD from Bangladesh will decrease and the inflow will continue to increase. This will reduce the financial account deficit and increase reserves by June next year. I am optimistic that the country's economy will turn around completely after the elections and the GDP growth will exceed 6.5 per cent by the end of the fiscal year.”
After the election, a new government will be formed and the economy will stabilise, he added.
Exchange rate and USD crisis
The governor said, "We told all the commercial banks that they have to cover import expenses with the USD that will come against their exports and remittances.
“The current exchange rate is not much higher than the real effective exchange rate, what we see now is only for the high inflation.”
Now the official exchange rate is Tk 111, however in the kerb market this rate exceeds Tk120.
The governor added, “If inflation can be brought down to 8 per cent by December, then the price of USD will also come down. If inflation goes down, the real effective exchange rate in Bangladesh will decrease as well, compared to the competitor countries.
“As a result we will not have to devalue taka against USD.”
NPL and governance issue
Addressing the non-performing loans (NPL) issue, the governor said, “I have been in charge for the last 14 to 15 months. The news of loan scams is fewer now. The bank boards are now very responsible, and the central bank inspection teams are also vibrant.
“At the moment, information about irregularities in the banks is not as widespread as before. We are working on the target to bring down NPL in state-owned banks to 10 per cent and in private banks to 8 per cent. We are optimistic about achieving this target.”
He added, “At one time, defaulted loans were 20 per cent – 22 per cent of total banking sector loans. Now, the ratio of defaulted loans against total loans has decreased. However, the number of defaulted loans looks a bit high.
“The initiatives that we will implement at the beginning of the next year, have given a message to the banks to reduce NPL. Hopefully, they will be able to reduce such loans, as bank boards and management are now more aware of this issue.”