The main function of the organization is to control inflation and keep people comfortable. The agency tries to do this by announcing monetary policy every six months.
Inflation in the country has been above 9 percent for 14 consecutive months. Usually one of the main tools to control inflation is to raise interest rates. But even with that, i.e. interest rates are raised, inflation remains rampant; Due to which the low income people are suffering a lot now.
Bangladesh Bank’s main job is to keep people comfortable by keeping inflation under control. The regulator tries to do this by announcing monetary policy every six months. In line with that, the central bank will announce the new monetary policy for the first half of the next fiscal year 2024-25 in mid-July.
The relevant officials of the organization are now working on what steps can be taken in the new monetary policy in the situation of high inflation. Meanwhile, chaos is going on in the banking sector as well. A few banks in crisis continue to operate with money printed by the central bank. These are also the cause of headaches. Action should be taken accordingly.
Officials of the central bank said that there is little opportunity to take any new measures to control inflation. Due to the pressure of the government, the right policy could not be taken in time. Due to this, the crisis has been prolonged. However, the bank loan interest rate has already increased from 9 percent to over 15 percent. So now the policy may be to increase the interest rate to make money more expensive. This will further increase the interest rate of the loan. But everything will be determined by the Monetary Policy Committee.
It is known that the monetary policy committee meeting will be held soon. Along with the governor and central bank officials, there are economist Sadiq Ahmed, Bangladesh Institute of Development Research (BIDS) director general Binayak Sen and Dhaka University economics department chairman Masuda Yasmin.
When asked to know, Executive Director of Private Research Institute Policy Research Institute (PRI) Ahsan H. Mansoor said that in the current situation, we should try to reduce inflation by keeping the interest rate based on the market. The dollar crisis has also reduced a lot. Under no circumstances can one go towards printing money. However, Bangladesh Bank has once again started printing money and giving loans to the government. They are also giving loans to Shariah-based banks that are in crisis by printing money. If this goes on, the goal of monetary policy cannot be achieved.
Ahsan H. Mansoor also said that fixing the pathetic condition of the banking sector is one of the biggest challenges now. The entire sector is dying due to lack of proper supervision and development. Because of this many policies are not working. Money laundering continues. For that, Bangladesh Bank has to decide, how much more damage will they give to the banking sector.
In the proposed budget for the next financial year 2024-25, the target of bringing down inflation to 6.5 percent and achieving 6.75 percent growth in GDP has been set. Bangladesh Bank will also formulate monetary policy keeping the same goal in mind.
In addition to the US dollar, there is also a crisis in the local currency in the country, due to the imbalance in foreign transactions, the reserves have decreased at an alarming rate. Apart from this, the banking sector is also unregulated. These are the major problems of the country’s financial sector. The central bank is responsible for solving these problems. They try to protect the country’s economic development and stability through monetary policy twice a year.
Bangladesh Bank has raised the policy interest rate twice this year. This has a direct impact on the government’s bank loan interest. The removal of the interest rate cap has had an impact on bank loan interest. In the first phase, the policy rate was increased by 25 percentage points to 8 percent in January and last May it was increased by 50 basis points to 8.5 percent. As a result, the interest rate on loans increases and generally the demand for loans decreases. As a result, the flow of credit to the private sector decreased to 9.90 percent last April. Thus, as the flow of money in the economy decreases, inflation starts to decrease.
Monetary policy is not working to control inflation. Inflation has been above 9 percent for 14 months. In the last month of May, it increased to 9.89 percent. In other words, the product which cost 100 taka in May last year, has cost 109 taka 89 paisa in May this year. Food price inflation increased to 10.76 percent in May, which was 10.22 percent in the previous month. In April it was 9.74 percent.
Mustafa Kamal Mujeri, the former Chief Economist of Bangladesh Bank, told Prothom Alo about what to do in such a situation, contractionary monetary policy has been taken to control inflation. Now fiscal policy and other policies have to be coordinated with this. Inflation cannot be brought down by monetary policy alone. For this, market management should also be improved. As a result of chaos in the market, prices of products are suddenly fluctuating without any reason. Some traders are cutting people’s pockets through this. This shows how much disharmony has become evident.