Monetary policy needs to be formulated with proper understanding of market system

Published : 29 Jan 2023 10:26 PM

Monetary policy needs to be formulated with a proper understanding of the functioning of the market system in the economy. Otherwise, its impact on the economy will be profound said,  Dr. Ahsan H. Mansur, Executive Director, Policy Research Institute, Bangladesh.

Highlighting India's liberal interest rates, he said there was no challenge in their balance sheets, inflation was relatively low. There needs to be policy coordination in our country. Despite disruptions in global commodity supply management, our country has not taken any measures of its own. The situation could be controlled to some extent by changing the interest rate regularly. 

Currently, inflation, dollar crisis and liquidity crisis are the main problems in the country. The dollar crisis in the country is evident, if it continues to increase, the problem may take a more complex shape.

He feels that there is a need to have visionary policies and guidelines to mitigate the pressures on the economy in this situation.

The Institute of Chartered Accountants of Bangladesh (ICAB) organized a Round Table Discussion on Monetary Policy 2022-2023 at ICAB Council Hall, CA Bhavan in the capital on Sunday. Dr. Ahsan H. Mansur, Executive Director, Policy Research Institute, Bangladesh was present as the chief guest at the event.

Ferdaus Ara Begum, Chief Executive Officer (CEO) Business Initiative Leading Development (BUILD); Mahbub Ahmed, Former Senior Secretary, Ministry of Finance, Government of the People’s Republic of Bangladesh; Dr. Jamaluddin Ahmed FCA, Past President – ICAB; Mohammad Refayet Ullah Mirdha, President, The Economic Reporters' Forum (ERF) and Zakir Hossain, Business Editor, Daily Samakal addressed the discussion.

The discussion was moderated by ICAB Council member and Past President Md. Humayun Kabir FCA while ICAB President Md. Moniruzzaman FCA gave address of welcome.

Dr. Ahsan H. Mansur said, unchanged policy interest rates in the country have compounded the problem. In global consideration, the investment rate of dollar and rupee should be adjusted. Money laundering is rampant in the country. The savings rate has come down to 5.5 per cent, from 16.5-16.7 per cent earlier year. Good governance of banking system is very important. There should be no inconsistency in monetary policy.

Moderator of the discussion Md. Humayun Kabir quoted an economist as saying that inflation has been caused by disruptions in the global supply chain.

He commented that the current crisis will not go away just by lifting the interest rate cap.

ICAB President Md. Moniruzzaman said, Bangladesh Bank has announced its monetary policy (MPS) with three objectives, controlling inflation, creating employment and increasing gross domestic product. The MPS projects inflation to be 5.6 percent in FY22-23. 

He said, initiatives have also been taken to reduce the supply of money in the market to prevent inflation. In line with low inflation and high economic growth, the national budget pegged GDP growth at 7.5 percent.

He also said that the repo interest rate considered as the policy rate has been increased.

He said, emphasis has been placed on increasing the production of import substitute products. Due to this, the formation of new refinancing fund has been announced. Monetary policy has called for increasing the LC margin to curb the import of luxury goods, foreign fruits and non-essential goods.

He also said, deregulated interest rates would help control imports and help stabilize foreign exchange reserves.

Bangladesh Bank increased the policy rate by 50 basis points to 5.50% to reduce money supply in the market.

Economists are recommending the withdrawal of the lending rate cap of 9% to control inflation and restore stability in the foreign exchange market and at the same time to support the desired economic growth and ensure the flow of funds needed for the economy to be productive and employable, he said.