Editorial Desk :
The monetary policy for the fiscal year 2022-2023 that the Bangladesh Bank unveiled on Thursday has indeed left room for a critical discussion. After the policy was unveiled by the BB Governor Fazle Kabir, leading economists have provided their expert opinions, pointing out its merits and demerits.
Bangladesh is currently going through a serious economic crisis as a direct consequence of the fallout of the Covid-19 pandemic and Ukraine-Russia war. People, especially the poor and the lower income group of people, are virtually struggling to make ends meet as food costs have soared greatly since the war began in late February this year. Besides inflation, the value of taka against the dollar has fallen sharply also. These two major problems have gripped the economy of Bangladesh like they did in many countries of the world.
Against this backdrop, the Bangladesh Bank has rightly pointed out that checking inflation and keeping foreign exchange reserves stable is the number one priority of the central bank. But the measures that the central bank mentioned in its policy, according to economists, are not adequate. Currently, inflation has increased to an eight-year high of 7.42 per cent in May, primarily driven by a hike in food costs. The BB’s monetary policy has targeted to restrain this inflation at 5.6 per cent, but as economic circumstances stand today in the global perspective, it is highly unlikely that the government would be able achieve its inflation target.
The central bank indeed hiked the policy rate by 50 basis points to 5.50 per cent and it is in the right direction to contain inflation, but it didn’t change the lending rate cap, a step that the economic experts of the country are urging the central bank to take for quite some time. Only a policy rate increase cannot tame inflation if the lending rate is also not increased, they pointed out.
If banks now pay 6.5 per cent in interest on deposits, it will be difficult for them to lend at 9 per cent by maintaining statutory liquidity ratio (SLR) and cash reserve ratio (CRR). Therefore, experts said lending rates should have been raised by 2-3 per cent. Under the current tight money market condition with the increased costs of funds amid higher inflationary and exchange rate pressures, keeping the lending rate cap fixed at 9 per cent might pose a challenge in the near future as it will narrow down the interest rate spread to some extent.
