A tightrope walk: BB’s strategy to tame inflation and stabilise growth
The recent Monetary Policy Statement (MPS) unveiled by Bangladesh Bank (BB) for the January-July period of the 2024-25 financial year reflects a prudent approach to navigating the complex economic landscape.
As per a report published in this newspaper on Tuesday, by maintaining the policy rate at 10 per cent, alongside the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF) rates, the central bank signals its commitment to a “reasonably tight” monetary policy aimed at curbing inflation and stabilising the foreign exchange market.
Inflation remains a pressing concern, with rates having recently declined from 11.38 per cent to 9.94 per cent.
BB’s target of reducing inflation to a range of 7 to 8 per cent by June 2025 is ambitious yet achievable, provided that the central bank continues its contractionary measures and collaborates closely with stakeholders.
The expectation of a further drop to 5 per cent by the following year, as expressed by Deputy Governor Habibur Rahman, offers a glimmer of hope for consumers and businesses alike.
However, the challenges facing the banking sector cannot be overlooked.
The alarming rise in non-performing loans (NPLs), projected to exceed 30 per cent of total outstanding loans by June 2025, underscores systemic weaknesses and regulatory gaps that must be addressed urgently.
The BB’s recognition of these issues is a step in the right direction, but it requires decisive action to restore confidence in the financial system.
The MPS also highlights the importance of stabilising the foreign exchange market and building foreign reserves.
The implementation of a crawling peg exchange rate mechanism is a commendable move towards ensuring flexibility while maintaining stability.
However, the cessation of BB’s intervention in the interbank market raises questions about the long-term sustainability of this approach.
Former World Bank economist Zahid Hussain’s praise for the policy stance on the interest rate is warranted, yet his concerns regarding the ambiguity of exchange rate provisions should not be dismissed.
Clarity and consistency in policy communication are vital for fostering trust among investors and the public.
While the BB’s MPS reflects a cautious optimism in addressing economic challenges, it is imperative that the central bank remains vigilant and proactive.
The path to stability and growth is fraught with obstacles, but with a focused strategy and collaborative efforts, Bangladesh can navigate these turbulent waters and emerge stronger.