Eight of the country’s top economists have advised Bangladesh Bank to maintain its reserves to withstand the upcoming economic shock caused by the crisis in the Middle East.
They said the extent of the crisis is still unclear. If it becomes a global crisis, both the reserves and the dollar will come under pressure. Therefore, reserves must be preserved.
They added that it would not be appropriate to reduce the policy interest rate at this moment. Once the impending pressure eases, a reduction in the rate could be considered to stimulate investment.
The economists gave this advice at a meeting of Bangladesh Bank on Saturday. They also said alternative sources of fuel must be arranged instead of relying solely on the Middle East.
Even if global prices rise, passing the increase on to consumers immediately would be unwise, as it could trigger inflation.
New governor Mostaqur Rahman, who took office on 26 February, had initially proposed lowering the policy rate. However, that meeting was disrupted due to a resignation of one member and objections from the economists.
Following the attack of the US in Iran and the subsequent retaliation, uncertainty has emerged over fuel supply and prices. In this context, the governor held the meeting with the country’s economists to understand what decisions the government and Bangladesh Bank could take.
Also present at the meeting were economists including Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), Dr Fahmida Khatun, executive director of CPD, Dr Mustafa K Mujeri, former chief economist of Bangladesh Bank, Dr Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID), Professor Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), M Masrur Reaz, chairman of Policy Exchange Bangladesh, AK Enamul Haque, director general of Bangladesh Institute of Development Studies (BIDS), and Nazmus Sadat Khan, senior economist of the World Bank Dhaka office.
On behalf of Bangladesh Bank, the governor along with four deputy governors and senior officials were present. The bank was advised to form a committee to provide detailed updates on the country’s economy periodically, ensuring that no panic is created.
The meeting discussed that the war between Israel–United States and Iran could again put pressure on the dollar and reserves. It was also noted that remittances from expatriates may be affected. Concerns have additionally arisen over energy supply.
Meanwhile, the government’s policy is to increase domestic investment and create employment. Economists were asked what kind of policies could be adopted in such a situation and what measures the government is capable of taking, at the meeting.
Several sources present at the meeting said the governor assured that he would work with integrity and would not make any decisions under political pressure. He also advised banks not to take any decisions under political influence.
Economists present at the meeting said that there is little scope to avoid the global pressures currently anticipated. Focus must be given to minimising losses. The existing foreign currency reserves must be preserved, and dollars cannot be spent from the reserves for imports.
As importing fuel from the Middle East has become difficult, efforts should be made to procure it from Brunei and Singapore.
They also said that despite rising global energy prices, passing the increase on to consumers at present would be inappropriate. Emphasis must also be placed on proper market management.
They also advised that all foreign loan commitments, including those from the World Bank, should be repaid as quickly as possible.
They suggested taking additional loans from the Islamic Development Bank (IDB) to finance fuel imports.
Remittances could be affected due to workers’ travel difficulties, but arrangements should be made to make it easier for those who wish to send money.
Economists advised that inflation is still at a high level, and no decisions should be taken that could further increase it.
To manage inflationary pressure, the government has introduced initiatives such as the family card scheme, which must be properly implemented.
They also said that it is not the right time to reduce the policy interest rate; decisions on this should be made after assessing the post-war situation.
Attention must also be given to ensuring that small and medium entrepreneurs receive loans according to demand.