Monetary policy committee: Meeting not held, 1 member resigns

When the Bangladesh Awami League (AL) government fell a year and a half ago, inflation in the country had risen to 11.5 per cent. At the time, the new governor of Bangladesh Bank, Ahsan H Mansur, took steps to control inflation by increasing the supply of dollars and raising both commodity prices and lending interest rates. The initiative proved effective, bringing inflation down to 8.5 per cent.

Last week, businessman Mostaqur Rahman joined as the new governor of Bangladesh Bank. Soon after taking office, he told officials of the regulatory body that the issue of high interest rates would be reviewed with the aim of boosting investment.

In line with that announcement, he began working on the matter. However, some sector insiders say the governor moved to lower interest rates without properly reviewing market conditions, as inflation still remains high.

To reduce the policy rate, the governor called a meeting of the central bank’s Monetary Policy Committee on Wednesday. Sources said the meeting had instructions to lower the policy rate, which currently stands at 10 per cent.

Some members of the committee were initially informed of the matter. However, the meeting was eventually not held.

Meanwhile, economist Sadiq Ahmed resigned from the Monetary Policy Committee after learning about the planned meeting on lowering the policy rate. He is vice-chairman of the private research organisation Policy Research Institute (PRI) and a former senior official of the World Bank.

Attempts to contact him were unsuccessful as he did not answer calls. Notably, former governor Ahsan H Mansur previously served as executive director of PRI.

Bangladesh Bank formed the Monetary Policy Committee in 2023 during the tenure of the Awami League government. That same year, Sadiq Ahmed was appointed as a member of the committee. He had been serving as the only expert member until sudden resignation yesterday.

The exact reason for the postponement of the central bank’s Monetary Policy Committee meeting could not be confirmed.

However, some Bangladesh Bank officials said the controversy surrounding the initiative to reduce interest rates amid high inflation may be linked to Sadiq Ahmed’s resignation.

When asked, Bangladesh Bank spokesperson Arif Hossain Khan told Prothom Alo that he had been informed the Monetary Policy Committee meeting would be held after Eid.

“Bangladesh Bank will work to build a people-oriented economy. Monetary policy and the policy rate will be determined considering the interests of ordinary people,” he said.

Former director general of Bangladesh Institute of Development Studies (BIDS) and former chief economist of Bangladesh Bank Mustafa K Mujeri said, “Bangladesh Bank’s primary responsibility is to control inflation. Its second responsibility is to support growth. The only tool for controlling inflation is the policy rate.”

“I do not understand why the institution is giving greater priority to growth instead of controlling inflation. A conducive environment for investment has not yet been created. Energy supply and the law-and-order situation are not favourable for business. Lowering interest rates alone does not guarantee investment. Bangladesh Bank must take the right decision at the right time. The governor must prove himself through his work.”

Sources said documents prepared for the meeting recommended reducing the policy rate by 0.25 to 0.50 basis points. The new governor is reportedly keen to bring down lending interest rates by any means, and some members were informed of this.

In such circumstances, Sadiq Ahmed submitted his resignation letter.

The Monetary Policy Committee of Bangladesh Bank is chaired by Governor Mostaqur Rahman. Other members include Deputy Governor Habibur Rahman, Chief Economist Akhtar Hossain, BIDS Director General AK Enamul Haque, Chair of the Economics Department at University of Dhaka Firdousi Naher, and Bangladesh Bank Executive Director Mahmud Salahuddin Naser.

BIDS Director General AK Enamul Haque told Prothom Alo that they were informed on Tuesday afternoon that the meeting would not take place. It may be held after Eid, he said. “Sadiq Ahmed has informed us that he will no longer remain on the committee.”

During the tenure of the now-ousted Awami League government, business leaders once sat in another meeting at the capital’s Pan Pacific Sonargaon Dhaka hotel, attended by the then finance minister and the central bank governor, and decided to lower the policy rate.

The move sparked widespread controversy at the time. Later, the 6/9 interest rate policy was implemented, allowing large amounts of money to be taken out from banks in the name of loans. The central bank’s supervisory system was also deliberately weakened. A large portion of the money withdrawn through loans was allegedly laundered abroad.

Executive Director of the private research organisation South Asian Network on Economic Modeling Selim Raihan said, “The new governor joined and immediately said he would reduce interest rates. What he should have said is that he would reduce inflation.”

According to him, “The instability now emerging in the Middle East could cause another major shock. Taking the initiative to cut interest rates without reviewing such issues would not be appropriate. Like in the past, we do not want to return to administratively setting interest rates. Decisions on such important matters should be made after considering all factors and consulting stakeholders in the sector.”