In a decisive move to combat the soaring inflation that has plagued the nation, the Bangladesh Bank raised the repo rate by 50 basis points, marking the eighth increase in the past 19 months.
The new policy rate, now standing at 7.75 per cent, aims to curtail rising inflation, which breached the central bank’s target, reaching 9.93 per cent in October.
The Bangladesh Bank’s decision reflects a commitment to stabilising the economy amidst global challenges such as surging commodity prices and a depreciating taka against the US dollar.
The urgency to address these issues led to the restructuring of the monetary policy committee, which, on November 22, approved the latest rate hike.
The increased repo rate, coupled with a 25 basis points rise in the margin for lending, is anticipated to set the maximum lending rate for banks at 11.18 per cent.
However, experts like Ahsan H Mansur, Executive Director of the Policy Research Institute of Bangladesh, argue for more aggressive measures, suggesting a complete withdrawal of the lending rate cap and an additional 60 basis points increase in the lending rate margin.
Mansur emphasises the need to align Bangladesh’s policy rates with international standards, pointing to the Federal Reserve’s benchmark funds rate in the United States, currently ranging between 5.25 per cent and 5.5 per cent.
The call for strategic alignment with global interest rates underscores the gravity of the situation and the necessity for bold monetary steps.
As the central bank seeks to rein in inflation, it is crucial for the government to support these efforts by reducing expenditures and halting borrowing from the central bank.
Additionally, the banking regulator must focus on market-oriented exchange rates and refrain from printing new money to maintain economic stability.
Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank, said the hike in the repo rate will increase the cost of borrowing and drive up the deposit rates. As a result, he said, “There will be pressure on liquidity in the market.”
In the face of these challenges, the government, financial institutions, and citizens must collaboratively address the root causes of inflation.
It is imperative to foster a transparent and accountable economic environment, where effective market monitoring and anti-collusion measures are in place.
The time is ripe for a united front against inflation, urging citizens to support prudent economic policies and the central bank to remain vigilant in its efforts to ensure a stable and prosperous future for Bangladesh.
