Bangladesh Bank is all set to announce the monetary policy for the second half (January-June) of the fiscal year 2022-23 on Sunday. It will be the first monetary policy under the current governor, Abur Rouf Talukder.

The monetary policy is being announced at a time when the deputy managing director of the International Monetary Fund, Antoinette Monsio Sayeh, is on a Dhaka trip to finalise the proposed loan of USD 4.5 billion. She will hold a meeting with the central bank governor on Sunday.

Through the announcement, Bangladesh is returning to its previous trend of twice a year monetary policy.

The banks are currently going through a liquidity crisis due to low deposit growth. Around 88 per cent of the total money in the banking sector comes from term deposits. Once a term deposit matures, the investor withdraws the money or renews the tenure.

The remaining 12 per cent is demand deposit, where the clients frequently deposit money and withdraw it as per demand.

The growth in term deposit was calculated at 5 per cent after December, 2022, which is lowest since the fiscal year 1974-75. The banking sector witnessed an 8 per cent growth in deposit in FY75 and FY96.

To deal with adversities, the banks are now borrowing money from each other under the call money facility, where the average interest rate exceeded 7 per cent. The crisis-hit banks are even borrowing money at a maximum rate of 10 per cent. They also raised the interest on deposits.

In particular, the Shariah-based banks are suffering the most from the liquidity crisis.

The banks disburse loans with the money that they receive as term deposits. But the low growth in deposits forced some banks to almost suspend loan schemes, while some others put limitations on loan disbursements.

What will the new policy contain?

According to the central bank sources, the policy interest rate will be revised to overcome the crisis, but the interest rate on loans will remain unchanged at 9 per cent. The regulator will consider increasing the interest rate on consumer loans to 12 per cent.

The credit limit to the private sector will not be increased as deposit growth slowed down. The central bank will meet a major portion of the government's borrowing demands in the next six months.

Also, the new policy would emphasise funding the industrial sector as well as agriculture and SME sector through refinancing funds.

One of the main goals of monetary policy is to control inflation. But dollar and liquidity crises, depreciation of local currency, and lack of trust among the depositors now emerged as the key problems of the banking sector.