Policy rate to be hiked to 10% in the next 1-2 months

The Bangladesh Bank has decided to increase the policy rate to 10% in the coming months and also form three separate task forces with local and foreign experts for ensuring the central bank's autonomy and asset recovery against defaulted loans.

The decisions were made during a meeting with bankers today at the Bangladesh Bank.

Talking to journalists after the bankers meeting, Association of Bankers Bangladesh (ABB) Chairman Selim RF Hussain said the policy rate will be increased to 10% in the next one to two months. 

Governor Ahsan H Mansur, in a views-exchange meeting with journalists after the bankers meeting, said three separate task forces will be formed with local and foreign experts to ensure the autonomy of the central bank, to collect defaulted loans and do asset recovery.

The governor said the first of the three task forces is to reduce non-performing loans (NPL), while mentioning the need for time to restore the banking sector. 

The second task force will be for Strengthening of Bangladesh Bank's operation and the third task force will be for asset recovery, he added.

"The task force will work to recover the money from the defaulters as soon as possible. Law ministry, Bangladesh Financial Intelligence Unit (BFIU) officials will be in the taskforce which will launch its activities within the next 1-2 months," he said.

"We will bring experts from countries like the USA, UK and institutions like the IMF. Central bank officials will also be included. 80% of the total officers in these task forces will be taken from the central bank, the remaining 20% will be foreign experts," the governor added.

Mentioning that at least 2-3 years are needed to restructure the banking sector, he said, "We will bring stability in the banking sector within a year. But the reconstruction will take some more time."

Meanwhile, ABB Chairman Selim RF Hussain said, "The policy rate will continue to rise until inflation is brought under control. The policy rate will be taken to 10% in the next 1-2 months. This is a standard process."

He further said the governor believes in liberal interest rate regime. "He made the interest rate free float. There was some unwritten cap on the landing rate, he removed that too. Bankers have been instructed not to go for unusual landing rates."

Emphasising that there is stability in the dollar market, he said, "The exchange rate is now in the Tk120 range and we will conduct business at this rate. The dollar price in the curb market is in the range of Tk121-122."

"We expect remittances of over $2.5 billion this month," he added.

Selim RF Hussain also acknowledged the slow down of LC opening. He said, "It depends a lot on consumption and the demand has also come down a lot. There is no dearth of dollars in the market now, so LCs can be opened whenever needed."

"One of our challenges is that $1.5-2 billion payments are pending in four government banks. We expect these payments to be completed within the next 6 months. This will resolve the current pressure in the market."

Central bank will look after the interests of the depositors

Regarding a sense of panic among depositors, Governor Ahsan H Mansur said money has been taken out of eight banks and looted in various ways. 

"Depositors have knowingly kept money in these banks in the hope of higher interest. But the central bank will look after the interests of the depositors, there is nothing to panic," he said.

He further said, "I would request the depositors not to line up to withdraw money together. Withdraw as much as you need to meet family needs. Give us some time. We hope the banks will turn around."

"I want to make one thing clear that the entire banking sector will not be damaged due to these eight banks. This sector will turn around soon," he added.

He further said, "No more liquidity assistance will be given to any bank by printing new money. 

"To provide full liquidity support, Tk2 lakh crore will be required. But the central bank will not print money for now. Because printing money will increase the supply of money in the market and inflation will multiply, the exchange rate will cross Tk150. We want to bring down inflation and keep the dollar rate withinTk120 for the time being."

However, these banks will get money through inter-bank lending against the central bank's guarantee."

"From there it will return customers little by little. Besides, the money will be returned by selling the assets of defaulters in the country and bringing back the smuggled money. The help of international organisations is being taken to recover the money," he added.

When asked whether the availability of private sector loans will be affected if money is lent to the interbank in this way, he said, it will be lent in this way as part of liquidity management. 

"Private sector loans will not be affected due to this. Because deposits are increasing in many good banks. Deposit growth of some banks is 30-40%. As a result there will be no problem," he added.

Stating that every bank will be audited, the governor said, the banks in which the new board of directors has been formed, they will look at the management issue. 

"We are looking at the fact that there should not be a long process to take action against irregularities in loans. Among these, the big banks may stand on their own feet. If it is a small bank, we will merge or liquidate. Either way, we will look after the interests of the depositors. There is nothing to panic about here," he said.

Money laundered to 4 countries

"We've seen 500-600 homes owned by a single Bangladeshi family in the UK," the governor said. 

According to our review, the bulk of money laundered out of the country went to four countries. 

"The countries are the United Kingdom, USA, Dubai (UAE) and Singapore. We are trying to bring money back from these countries," said the governor.

He further said, "Those who are big defaulters, we will first identify them and first try to recover their assets inside the country. Later we will take legal and international efforts to bring back the money they smuggled."

"We have already spoken to representatives of the World Bank, UK and USA governments. There will be more discussion. We will take two types of support from them. First, how is it better for us to repatriate the smuggled money. Secondly, help to bring back the resources of our country which have been looted and taken abroad," he said.