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BB to announce new monetary policy soon

Focus on macroeconomic stability

Published : 09 Jun 2023 09:58 PM

Bangladesh Bank will announce a new monetary policy this month, where measures for the single exchange rate of US dollar and market-based interest rate are getting priority.

The monetary policy will also focus on the government’s medium-term reform policy to bring stability to the macroeconomic sector, said a senior official of the central bank who is involved in its formulation wishing anonymity.

The finance division, a wing of the finance ministry, has set a 5-point reform target to get benefits in the medium term in the macroeconomic sector by overcoming the dollar crisis and strengthening the forex reserves of the country.

The outline of these reforms has been finalized. These included introducing market-based interest rates on bank loans and the single currency exchange rate as per market demand rather than the current multiple rate system.

Besides, the amount of subsidy will be reduced gradually, and the cost of government borrowing reduced in phases, along with cutting the volume of loans from savings bonds.

The government policymakers identify ensuring good governance in the financial sector by amending the Bank Company Act and Financial Act for the stability of the macroeconomic situation.

The policymakers have determined these reforms in consultation with the International Monetary Fund (IMF), whose implementation will be started through the monetary policy.

Former governor of BB DrSalehuddin Ahmed told UNB in this regard that the central bank has to go through the market-based interest rate policy to curb domestic consumption.

“These policies will also work to reduce huge import pressure by decreasing domestic consumption,” he said.Former finance secretary Mahbub Ahmed said saving bonds work as a social safety programme for retired people.

If the government borrowing from saving tools is decreased, people of limited income groups cannot invest in this sector, resulting in growth instability among them, he pointed out.

A senior official of the central bank said that the interest rate corridor is a mechanism through which interest rate limits will be removed gradually. He spoke on condition of anonymity.

However, what will be the maximum interest rate of bank loans, the central bank will determine it every month through an announcement. The BB will follow its prescribed formula in fixing this interest rate.

The new system is likely to come into effect from next July. The central bank will decide in this regard after examining it.

The central bank will also determine the maximum interest rate on consumer loans, which are usually taken by service holders on household appliances.