BB adopted contractionary monetary policy to contain inflation
Staff Reporter :
The Bangladesh Bank (BB) adopted contractionary monetary policy for the first half (July-December) of the 2023-24 financial year.
The central bank announced in its new Monetary Policy Statement (MPS) on Sunday that containing inflation is the first and foremost objective of this monetary policy.
Conforming to the tight monetary policy stance, BB decided to increase the policy rates by 50 basis points. The repo rate is adjusted upward from 6.00 percent to 6.50 percent while reverse repo rate is adjusted upward by 25 basis points from 4.25 percent to 4.50 percent effective from July 01,2023.
The Bangladesh Bank (BB) has removed the interest rate cap of 6 to 9 percent , and replaced it with a market-driven reference rate for all types of bank loans to be regulated by the average treasury bills rate.
As per the new rate formula, stated in the latest monetary policy, the reference rate will be calculated as the six-month moving average rate of treasury bills with a 3% margin for banks and a 5% margin for non-bank financial institutions.
Currently, the rate of the 6-month treasury bills stands at 7.10 percent, so the maximum lending rate for bank loans will be 10.10 percent and for NBFIs 12.10 percent.
However, the lending activities for CMSMEs and consumer loans may be subject to an additional fee of up to 1.00 percent to cover supervision costs and there will be no changes in the interest rates applicable to credit card loans.
BB also introduced a unified and market-driven single exchange rate regime, allowing the exchange rate between BDT and USD or any other foreign currency to be determined by market forces.
Abdur Rouf Talukder , Governor of the central bank announced the new monetary policy in a press conference at Jahangir Alam Conference Hall.
Chief Economist Dr Md Habibur Rahman gave a presentation on the new MPS highlighting the different measures relevant to the macro-economy.
The Governor said that BB will calculate and publish gross international reserves (GIR) in line with the sixth edition of the IMF’s Balance of Payments and International Investment Position Manual (BPM6) while keeping track of current practices of calculating and reporting total foreign assets.
In reply to a query, Abdur Rouf Talukder said a stable exchange rate and standard foreign exchange reserves are the challenges of this monetary policy.
The Bangladesh Bank’s new monetary policy foresees challenges in achieving a 7.5 percent GDP growth target due to due to high inflation in developed economies and global uncertainties.
Unveiling a ‘contractionary’ monetary policy statement (MPS), Bangladesh Bank (BB) has projected domestic credit growth ceiling at 15.3 percent in the fiscal 2023-24 (FY24) accommodating 11 percent credit growth in private sector and 30 percent in public sector.
Responding to the new monetary policy for H1FY24, Barrister Md Sameer Sattar, president of the Dhaka Chamber of Commerce & Industry (DCCI) said that the interest rate on bank loans may reach double-digit, which may trigger manifold challenges for the survival of businesses in the current volatile geo-economic situation as well as provoking inflation.
Deputy Governors, the head of the Bangladesh Financial Intelligence Unit (BFIU), the chief economist, and other officials of the Bangladesh Bank were also present at the event.
