Policy reforms to get priority

The Bangladesh Bank is going to announce the Monetary Policy Statement (MPS) for the first half (H1) of the next fiscal year with a focus on policy reforms to meet the conditions imposed by the International Monetary Fund (IMF).

The central bank is set to announce the MPS in mid-June this year. As part of the move, the banking regulator on Sunday started taking opinions from the internal stakeholders through a meeting.

Bangladesh Bank Governor Abdur Rouf Talukder, also head of the Monetary Policy Committee (MPC), presided over the meeting while central bank deputy governors and executive directors were present.

A senior official of the central bank said that the meeting discussed the whole economic situation including the internal and external factors which are affecting the economy.

The monetary policy would be a cautious one as the country is facing several challenges including a crisis in the foreign exchange market, he added.

The BB official said that the monetary policy statement is likely to be announced on June 18.

Another central bank official, who is involved in preparing the MPS, told The Business Post that policy reforms will get priority in the upcoming monetary policy.

He said that the central bank will introduce an interest rate corridor on lending and a uniform exchange rate in the upcoming monetary policy.

The BB plans to fix the 3 per cent interest corridor on 180 days treasury bills for lending instead of the current 9 per cent lending rate. The banking regulator is going to introduce the new interest rate system after three years as the central bank had fixed the 9 per cent lending rate in April 2020.

The BB already withdrew the single digit lending rate on consumer loans in the current monetary policy.

The uniform exchange rate is another reform which will feature the MPS in line with the IMF recommendation as the country now has different exchange rates.

Taming up the skyrocketing inflation and increasing the foreign exchange reserves are also focal points in the upcoming MPS, said officials involved in preparing the MPS.

The inflation rate stood at 9.24 per cent in April though the government revised target is 7.5 per cent.

On the other hand, the country’s forex reserve stood at $30.17 billion on May 17, down from $42.23 billion on the same date of the previous year, as per the latest data from the Bangladesh Bank.

Before announcing the new MPS, the central bank will meet the country’s economists and think tanks including the Policy Research Institute of Bangladesh (PRI), the Centre for Policy Dialogue (CPD), and the Bangladesh Institute of Development Studies (BIDS).

Economist Zahid Hussain thinks the upcoming monetary policy will be as usual except few policy reforms to meet the recommendation of the IMF.

“The interest corridor on lending and a uniform exchange rate are the two major reforms in the upcoming MPS. This is very important how the central bank manages the interest rate corridor,” said Zahid, a former lead economist of the World Bank, Dhaka office, adding that the monetary policy statement should have explanations on this issue.

He said that now the interbank exchange rate is almost inactive as the rate is higher than the rate the central bank shows on its website.

On the other hand, the central bank is selling USD from reserve at Tk 104 per dollar which is lower than the market rate, he added. Industry insiders, however, said that the BB will have to reform those policies in the monetary policy as it has to execute the IMF conditions from the next fiscal year prior to getting second instalments of its $4.7 billion loans for the country’s economy.