Bangladesh Bank is set to unveil a more contractionary monetary policy for the second half of the running financial year policy (H2FY24), in the second half of the running month.
The monetary policy is intending to elevate the policy interest rate further to heighten the cost of money. This strategic move aims to curb escalating inflation by rendering money more expensive.
The finalized draft of the monetary policy is awaiting approval after consultation with the newly appointed finance minister. The monetary policy committee, consisting of central bank officials and external experts, will convene next Saturday to finalize the policy for the January-June period.
According to a central bank official amid mounting inflation challenges, the central banks primary focus is on reducing inflation from the current 9.49 per cent to the targeted 6 per cent by June.
Market-based loan interest rates have been adjusted, with rates climbing from 9 per cent to 11.89 per cent. However, credit flow to the private sector has declined due to liquidity constraints and increased interest rates.
The persistent dollar crisis, spanning one and a half years, has seen the official dollar price surge from Tk86 to Tk110, with market rates exceeding Tk120.
This crisis has led to deficits in the current and financial accounts, resulting in a significant reduction in foreign exchange reserves to around $20.38 billion, the official said.
A financial market insider said supervision challenges and lack of control have contributed to a surge in defaulted loans in the banking sector, surpassing Tk1500 billion.
Non-performing loans in the financial sector have reached Tk210 billion, constituting 30% of total loans. The Shariah-based banks face challenges in depositing funds in the central bank, exacerbating current account deficits.
He said the forthcoming monetary policy aims to be contractionary, emphasizing high-interest rates to restrict money supply, reduce inflation, and stabilize foreign exchange rates.
External expert opinions are being prioritized alongside internal research-based strategies in formulating this policy.
As Bangladesh grapples with economic challenges, the central bank sees effective use of monetary policy as its primary tool to navigate and resolve the current crisis, ensuring stability and sustainable economic development, he said.
