Photo: Collected
To fix the monetary policy, the central bank is facing multi dimensional crisis as the businesses and the economists are thinking opposite. Moreover, there are strict conditions of donor agency International Monetary Fund (IMF). The businesses want lower interest rate but the IMF stressed to hike interest rates for January to June.
The IMF wants either a tighter monetary policy or an increase in the policy interest rate until the inflation rate decreases. The demand of the businessmen is that the interest rate cannot be increased at any time, the existing rate should be kept stable and reduced in stages.
When asked about this, Economist Professor Ainul Islam told The Daily Messenger that the country’s economy is currently under pressure due to various reasons, there is no way to deny it. On the one hand, there is a deficit in government revenue collection, on the other hand, the dollar crisis persists. Also, the reins of inflation are not being pulled. In this situation, the central bank has to be very strategic in formulating monetary policy.
Chairman of Policy Exchange Bangladesh M Mashrur Riaz told The Daily Messenger that the financial sector of Bangladesh, especially the banking sector, is facing destruction due to some oligarchs. A lot of money is laundered abroad. This has an impact on investment. Now the government should be strict in recovering money from defaulters, he added. Dr. Md. Abdur Razzak, Chairman of Rapid, said, income inequality is increasing due to indirect taxes.
Currently direct tax collection is only 35 percent of the total collection. However, if it can be increased to 70 percent, marginal people would be relieved from the tax burden to some extent. In order to meet public expectations, the interest rate of loans and the price of the dollar should be reduced rather than increased.
However, the people of the county demanded to reduce inflation, increase the value of the taka and income. But the economists want a cumulative measure to restore the economy. Meanwhile, the central bank is now reviewing its policy decision to increase the policy interest rate to control the inflation rate under multi-faceted pressure.
If one of the monetary policy instruments is relaxed, the pressure on the other is increasing. This has put the central bank in a crisis of both. In such a context, the announcement of the new monetary policy has been initially set for February 10. However, this date may also be changed due to the need for preparation. The news is from relevant sources. Meanwhile, the central bank has started talking with the stakeholders to formulate a prudent monetary policy.
BB said, the proposals come from the meetings will be cope up with the decisions. However, all the proposal will be under consideration of the local and global economic challenges. One of these will be how to provide relief to businessmen and consumers by increasing the policy interest rate and controlling inflation. The other will be how to rein in inflation without increasing the interest rate.
Such a report will be presented to the Monetary Policy Committee. The committee will take a final decision. In light of this, the monetary policy will be formulated and the approval of the board will be sought. Then it will be announced.
IMF thinks, inflation rate must be controlled through the use of monetary policy. That is, the policy interest rate must be increased further. Increasing this rate will increase the interest rate on loans in the market. This will increase business costs.
The flow of loans will have to be curbed. As a result, the supply of loans to the private sector will further decrease. In addition, the IMF has also asked to increase the prices of gas and electricity.
However, the government is backing away from this decision. Since all the conditions of the IMF were not implemented, the organization has postponed the disbursement of the fourth installment of the loan. According to the loan agreement signed by Bangladesh with the IMF in January last year, the fourth installment was supposed to be disbursed in December.
But now it is being said that the disbursement will be made next March. That is, it has been postponed for three months. The installment will also be disbursed less. According to the depreciation rate and quota of the taka against the dollar, more than $ 1 billion is supposed to be disbursed.
But they will disburse much less than this. In such a context, if the monetary policy is not tightened, the IMF’s advice will be ignored. Meanwhile, the central bank has held a meeting with two delegations of businessmen. In this, they clearly said that the loan interest rate cannot be increased at any time.
To save industry, trade and commerce, the loan interest rate must be kept stable and reduced in stages. This rate should be brought down to single digits or within 9 percent. Traders also said that the dollar price should be kept stable. But as a result of leaving its price to the market, prices are gradually increasing.
The central bank will soon hold a meeting with economists and researchers on the monetary policy strategy. Their opinions will also be given importance to revive the economy, central bank officials said.
Meanwhile, consumers want steps to be taken through monetary policy to reduce the inflation rate, reduce commodity prices, increase new employment, retain existing employment and increase income. To meet public expectations, the interest rate on loans and the dollar price cannot be increased. Rather, it must be reduced.
At the same time, the flow of loans cannot be reduced, but rather increased. Doing this will increase the pressure on inflation again. As a result, nothing like this can be done. But the main goal of the central bank is to reduce the inflation rate, increase investment, boost trade and commerce, and create employment.
To achieve this goal, interest rates must be reduced and the flow of loans must be increased. This will also increase the pressure on inflation. As a result, the central bank is facing a dilemma in formulating monetary policy considering the overall economic
situation in the country.
Recently, the top executives of the central bank held a meeting to formulate the second round of monetary policy for the January-June period of the current fiscal year. In this, they reviewed the domestic and global situation and recommended increasing the policy interest rate. If the policy interest rate increases, the interest rate on loans in the market will increase.
The flow of credit will decrease. This will put traders in a crisis. For this reason, traders have also raised objections to it. Meanwhile, the monetary policy for the current fiscal year was formulated during the last Awami League government.
Messenger/Tareq
