Bangladesh Bank (BB) will unveil its second Monetary Policy Statements (MPS) of the fiscal year today with 'accommodative measures' to address inflation and liquidity problems.
According to BB data, point-to-point inflation stood at 8.71 percent in December last year, up from 6.05 percent in December 2021.
Economists who are engaged in the preparation of MPS say the policy is more of a formality than a major change for the remainder of the fiscal year.
Considering the current state of the money market, where inflation and liquidity crises are growing, Agrani Bank chairman Dr Zaid Bakht believes there is no alternative to an accommodative policy.
“Inflation and liquidity crises are affecting the macroeconomic situation. The central bank should think carefully about interest rates. Increasing rates will result in a rapid increase in non-performing loans. Furthermore, new money injection may stabilize liquidity. The negative trend in private sector borrowing may amplify inflationary pressure,” Dr Zaid told the Daily Sun.
By the third quarter of last year, the NPL in the banking sector stood at Tk 1.34 trillion.
To meet liquidity needs, the economist suggested BB issue credit schemes based on the ADR (advance deposit ratio) of the respective banks.
“There are no essential measures in the current statement to control the money market. Private sector credit growth has declined, while some banks are facing liquidity issues, and government borrowing is on the rise. There is no alternative to adjusting interest rates with inflation. Except for personal loans, the central bank has kept the cap at 9 percent. It's surprising,” Dr Mansur told the Daily Sun.
During July-December last year, Bangladesh Bank printed fresh money of more than Tk 500 billion for budget support, while the government borrowed Tk 656.05 billion from the central bank for debt repayment.
Ahsan H Mansur expressed concern over issuing new banknotes in the market, saying that it could fuel inflation further.
Monetary policy statement (MPS) is a set of tools used by the central bank to control the overall money supply and promote economic growth and employ strategies such as revising interest rates and changing bank reserve requirements.
Bangladesh Bank decided to roll out the next monetary policy in January, ending the current one halfway through its term in December last year.