Banks should increase agri-finance support to ensure food security

Bangladesh’s economy is now facing many challenges like commodity price hikes, high inflationary pressure, devaluation of taka against USD and other currencies, and interest rate cap and these challenges became worse due to the ongoing Russia-Ukraine war.

So, it is difficult to forecast where it is headed given so many variable factors. However, the economic situation may face many uncertainties which may make the situation worrisome.

Now a big question ahead of us is — how do we face the situation? Given the fluctuations in global commodity prices, we have little control now over related inflation and pressure on reserves.

The best thing to do during such trying times is to tighten our belts and practice strict austerity in all aspects — spending and consumption.

At such times, one must practice ride-sharing, and reduce unnecessary use of electricity, gas and water, which will translate into national savings. Using digital means as much as possible to save on tasks like printing, physical meetings, banking, etc.

The central bank has issued several circulars to maintain austerity in the banks and non-bank financial institutes as well. It should be seen whether the austerity is being followed by the institutions.

Interest rate is one of the major concerns all over the world as well as in Bangladesh. Most central banks in the world have increased their policy rates (the key interest rate, which is known as the repo rate in our country) a number of times to tame borrowings and control inflation.

It is time that Bangladesh Bank allows banks and NBFIs to increase their interest rates when the central bank also hiked its repo rate to 5.75 per cent in September from 5 per cent in May.

Savers are losing their principal amounts as the interest they receive plus associated tax levy means a very low yield on their hard-earned savings. Thus, this has to be immediately increased.

Banks must also be allowed to increase the interest rates on lending to tame credit growth, which is at very high levels now.

This suggestion also came from Bangladesh Bank’s latest special report on interest cap assessments, where the central bank said there is a concern about inflation showing an uptrend. This may call for lifting the cap on the interest rates.

Without moving or removal of interest rate caps, any policy rate hike seemingly may not be effective in transmitting the signal to the real sector of the economy. I think this observation is time worthy.

Food security is of paramount importance to any nation. Not having enough supply of food means people become unruly and resort to primal behaviour which could be destructive to a country.

Thus, given Bangladesh’s fertile soil conditions, we must support our farmers to optimise their production so that we do not have to import food grains, etc., spending our hard-earned foreign currency.

It is important that the government grows reserves of basic food grains to ensure a steady supply and control of market prices. Banks have been supporting agricultural finance and now it is time to ramp this up in the interest of the nation and its people.

Recently, Bangladesh Bank has approved the formation of a Tk 1,000 crore refinancing scheme for the agricultural sector to increase domestic production and prevent a food crisis due to the rising prices of food grains in the world market because of the Russia-Ukraine war.

I hope the food crisis that we fear will be tackled as a result of such measures and the bank will implement the refinancing scheme properly.

Anis A Khan is a former chairman of the Association of Bankers, Bangladesh