Cenbank executive directors for balanced, cautious monetary policy amid economic challenges

The executive director-level officials of the Bangladesh Bank have advised the formulation of a balanced and cautious monetary policy to address the pressures on the country's economy caused by the dollar crisis, escalating commodity prices and inflation, and a continuous decline in foreign exchange reserves.

During a meeting with Governor Abdur Rouf Talukder on Sunday, the central bank's executive directors stressed the importance of implementing a balanced and cautious monetary policy in coordination with fiscal policy to tackle both global and internal challenges.

According to sources present at the meeting, one of the executive directors stated that inflation is not expected to increase significantly in the next financial year due to increased production of various goods within the country. Consequently, a balanced monetary policy would be more effective in achieving the projected GDP growth outlined in the budget.

Another executive director mentioned that the Russia-Ukraine war is ongoing, and this would bring about numerous global challenges in the future. Therefore, it is crucial to formulate monetary policy while taking these factors into consideration.

During the meeting, officials from the central bank's monetary policy department highlighted Bangladesh's successful management of the crises caused by disruptions in global supply due to the Ukraine war. They stated that none of these crises had a substantial impact on Bangladesh's economy.

When approached for comment, an executive director who was present at the meeting informed The Business Standard, "Previously, we attempted to advance the national economy by coordinating fiscal and monetary policies. The Bangladesh Bank intends to pursue the same approach this time. That is, the monetary policy will be formulated in a manner that ensures the desired GDP growth and keeps inflation under control. Consequently, the stance of the monetary policy will be balanced and cautious."

One of the conditions for the International Monetary Fund (IMF) loan of $4.7 billion is the adoption of a market-based lending rate through the introduction of a corridor system.

Additionally, the donor organisation has recommended the implementation of interest rate corridors within the central bank's monetary policy framework. Consequently, the interest rate corridor system will be introduced in the monetary policy during the first quarter of the upcoming financial year, central bank officials said.

This system will include interest rates on loans provided to customers by commercial banks, which will be called "Corridor with Reference Rates." The other aspect will be the interest rate for lending money from the Bangladesh Bank to commercial banks, known as the "Corridor with Policy Rates", and this corridor will serve as a tool for conducting monetary policy.