The BB aims to compress the money supply to control inflation

Bangladesh Bank Governor Fazle Kabir speaks during a press briefing on the monetary policy statement for the financial year 2022-23 at the central bank’s headquarters in the capital Dhaka on Thursday. — New Age Photo

The Bangladesh Bank on Thursday announced a tight monetary policy for the financial year 2022-2023, mainly aimed at controlling inflation and volatility in the foreign exchange market.

Outgoing BB Governor Fazle Kabir announced the monetary policy during a press briefing at the central bank’s headquarters in the capital Dhaka.

Senior BB officials were present on occasion.

Mentioning that the BB would not compromise in fighting inflation, Fazle Kabir said the main monetary policy challenge would be to fight inflation and keep the taka exchange rate stable.

In addition, supporting the ongoing economic recovery for job creation has also emerged as an imperative for monetary policy, he said.

Based on the situation, the central bank prepared a cautious policy with a tightening bias to support gross domestic product growth by keeping pressure on inflation and the exchange rate under control, the governor said.

To keep inflation under control, the central bank sells dollars at the official exchange rate to banks for the import of food, fertilizer and fuel so that these imports can be made at an exchange rate of 93.5 Tk for one US dollar, Kabir said.

To achieve the targets, the central bank lowered the broad money circulation target to 12.1% for FY23, while actual growth was 9.1% in FY22 from to the 15% growth target.

The private sector credit growth target set for FY23 is slightly above the actual growth of 13.1% for FY22 and below the target of 14.8% for FY22.

The BB believes broad money growth would be sufficient to lift private sector credit growth to 14.1%, public sector credit growth to 36.3% and overall domestic credit growth to 18.0%. .2% in FY23.

In the MPS for FY23, however, the central bank made no changes to the 9% interest rate cap, which economists say would render monetary policy ineffective in combating soaring oil. inflation.

Speaking on the matter, Fazle Kabir said the weighted average interest was still around 7.08% and therefore the BB felt no pressure to raise the lending rate cap.

The governor, however, indicated that the new governor, who will replace him soon, would feel the need to revise the ceiling upwards.

The government has appointed Finance Ministry Principal Secretary Abdur Rouf Talukder as the new governor of Bangladesh Bank for a four-year term. The arrival of the new governor is scheduled for June 4 as Fazle Kabir’s term expires on June 3.

On March 20, 2016, the government appointed Kabir as governor of the BB for four years after Atiur Rahman resigned following the $101 million historic reserve theft.

Although the MPS was announced for the whole exercise, Kabir asked the next governor to revise it in October.

Under the new MPS, the central bank increased the REPO, considered the central bank’s policy rate, to 5.5% from 5% to combat demand-driven inflation as well as provide adequate liquidity for employment and investment.

Before the new increase, the May 29 BB increased the REPO rate to 5% from 4.75% for the same reason.

The central bank also announced that it will launch new refinancing programs to improve the production of import alternatives so that the import can be contained and the country’s foreign exchange reserve can be saved.

The central bank would also set the LC margin on the import of luxury items, fruits and unnecessary items higher, ranging between 100% and 75%.

The BB Governor said the banking sector’s net foreign assets could be negative in FY23 due to the negative overall balance of payments induced by import pressure.

The MPS mentioned that foreign assets would decline by 2.1% in FY23 despite a forecast of improved inward remittance flows.

He said: “The current booming growth in imports and exports is expected to be significantly moderated due to the base effect and cooling international and external demand in the context of a possible economic downturn in advanced economies.”

Kabir said the central bank will continue its efforts in FY23 to keep the overall capital market situation stable and for its long-term development, as it has done in previous years.

He said the size of the revolving refinancing scheme for small investors concerned has already been increased from Tk 153 crore to Tk 1,009 crore and the BB has already released Tk 280 crore from the fund.

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