Bangladesh Bank sees two challenges in economy 

The signage of Bangladesh BankReuters file photo

The Bangladesh Bank’s monetary policy committee (MPC) has identified two significant challenges for the economy – persistent high inflation and dwindling foreign exchange reserves. 

The central bank would continue its contractionary monetary policy to tackle the situation, says the committee during a meeting on Wednesday, with governor Abdur Rauf Talukder in the chair.

Bangladesh Bank’s deputy governor Habibur Rahman, executive director Kazi Saidur Rahman, economist Sadik Ahmed, and Bangladesh Institute of Development Studies (BIDS) director general Binayak Sen attended the meeting.  

The participants discussed the broader macroeconomic landscape, including inflation, currency liquidity, interest rate corridors, external pressures, and exchange rate dynamics. 

They acknowledged the ongoing efforts to mitigate the particular challenges, but pointed out that inflation still remains stubbornly high while foreign exchange reserves continue to fall short of expected levels.

The committee announced three decisive measures to address these concerns, with immediate effects. 

Firstly, the central bank will introduce a crawling peg system for foreign currency transactions, with the intermediate rate of the dollar fixed at Tk 117. It is an interim measure and will remain in place until fully market-based mechanisms are implemented.

Secondly, the policy interest rate will be raised by 50 basis points, from the current 8 per cent to 8.5 per cent.

Thirdly, the six months moving average rate of treasury bills (SMART) system currently used to determine loan interest rates will be abolished.

Instead, banks and financial institutions will set interest rates based on market demand, supply dynamics, and bank-customer relationships.