Monetary policy: Stakeholders suggest pumping money into market

Bangladesh Bank (BB) has been advised to increase the flow of money to the market at lower interest and on easy terms to bring the country's overall economy back to normal by tackling the effects of coronavirus pandemic.

Recently, the country's top business organizations, research institutes and economists have given this advice to the central bank which is formulating next monetary policy now.

They further said that sincere participation of all sectors is essential to make up for the economic losses caused by the coronavirus. All the suggestions given by the stakeholders are at the hand of the central bank to ensure maximum utilisation of those tools.

Besides, the department concerned of the government has to be properly informed about the issues which are not in the hands of the BB. At the same time, we have to keep an eye on whether it is happening or not. Due to the economic stagnation caused by the COVID-19 fallout, the income of low-income people has plummeted or the income of many has dried up. Many people are not buying product except the urgent considering the situation. This has put more stagnation on the economy.

In order to overcome this situation, their advices are to first mitigate the fear of coronavirus spread among the people and to announce specific targeted programmes. This will encourage people to return to normal activities. 

As human movement begins, economic activity will take off and accelerate soon. Only then there will be a flow of debt to the market. First of all, the existing industrial factories have to be fully operational. The local businessmen must increase investment to create new jobs. This will provide employment to the people and the people’s purchasing power will rev up.  People will buy the products which are produced in the country. Thus, according to their advices the central bank will take strategies in the upcoming monetary policy to bring the economy back to normal.

According to Bangladesh Bank sources, the central bank later this month will announce the next monetary policy, which is being drafted now, for the current financial year. 

The BB sought the views of prominent economists, businessmen and other stakeholders on what kind of monetary policy should be formulated to bring the economy back to normal when the economy is in turmoil due to the spread and economic fallout of coronavirus. The views of the stakeholders have been taken till July 7.  The local business firms, economic research institutes and other people have given their views on this. The central bank is now sifting these opinions while formulating the policy. 

According to BB sources, this year's monetary policy will have an initiative to recover the economy devastated by the coronavirus. Insiders have also given such advice in this regard. 

Stakeholders also said that as part of the central bank's work, it was necessary to increase the supply of money and keep inflation at bay. The government needs to be informed about the steps that need to be taken in other sectors. Because just implementing the BB incentive package or increasing the flow of money will not work. Communications, infrastructures along with other services also need to be ensured.

They also said that the group of people, whose income has squeezed or purchasing power has tamped down due to COVID-19, should take steps to enhance their purchasing power first. For this, those who were in the work, the way they were earning, the business environment must be ensured. Besides, there should be steps to create sources of income through new employment. 

The most important is to bring the country's industry and trade back to the state it was in before coronavirus pandemic.

At the same time new employment must be created by increasing new investment. For this, it is necessary to pump money into the market at low interest and on easy terms. 

Entrepreneurs need to be encouraged to invest. At the same time, it is necessary to increase the purchasing power and create opportunities to buy the products.

Sources in central bank also said, an additional Tk 1,50,000 crore has already been announced in addition to the ongoing money supply to the market. Of this, the central bank will provide Tk 82,000 crore. About Tk 15,000 crore is being given by the government. Banks will have to give Tk 50,000 crore.

Earlier, the interest rate on loans was 12 to 18 percent. From April 1, the interest rate on all loans except credit cards has been fixed at 9 percent. To counter the effects of coronavirus pandemic, the interest rate on loans given under the incentive package has been reduced from a minimum of 1 to 4 percent. That means commercial banks are taking funds from the central bank at 1 to 4 percent interest. Earlier, these loans were given at 5 to 7 percent interest. Entrepreneurs will get loans from banks at 2 to 9 percent interest. The BB has imposed a ban on levying charges other than interest on loans. As a result, the entrepreneurs will get relief from the net of interest on interest, penalty interest, service charge. This will reduce the cost of the loan for bank’s clients.