A contractionary monetary policy stance is ready for tightfisted spending, as it is deemed linked to inflation-combating priority of the incoming government, sources said.
The Bangladesh Bank (BB) is likely to unveil on January 15 the monetary policy statement (MPS) for six months from January to June 2024, sources said about the half-yearly MPS. The stance of the MPS in all likelihood will be contractionary.
People familiar with the development told the FE that they had already drafted the MPS for the period.
The Bangladesh Bank (BB) now needs two more procedures before placing it before the media people on January 15.
One is the Monetary Policy Committee meeting which was scheduled to be held today (Thursday) but postponed following the oath-taking ceremony of the new cabinet of the ruling Awami League.
The BB Board also needs to approve it in its next board meeting to be held on January 14.
Economists familiar with the matter told the FE that there is no alternative but to adopt tight monetary policy as the inflationary pressures remained too high impacting people's living.
Dr Zahid Hussain, an independent economist of Bangladesh, stressed the urgency of continuing with such contractionary MPS to contain the inflation that pushes up prices.
"We need to be harsher in terms of more tightening of the monetary instruments to curb the inflation," he told the FE.
Dr Hussain recalls that the last monetary policy mentioned unified exchange-and market-driven single-exchange-rate regime but there was no sign of getting to the target.
He also says Bangladesh committed to switching to fully market-based interest rate from 2026, and for this reason, there is now a need for plans on how to phase out from the existing SMART benchmark.
However, the monetary target for public-sector credits up to December 2023 was 43 per cent. But, at the end of November, it reached 21.55 per cent.
The target for private-sector credits was 10.9 per cent for up to December 2023. But, at the end of November, was recorded at 9.9 per cent.
The broad money target for December 2023 was 9.5 per cent, and at the end of November, it was 8.65 per cent.
A main focus of the last monetary policy statement was containing inflation, which failed, as no improvements in the price surges were tangible, analysts say.
The inflation rate was high at 9.49 per cent in November-in a stark contrast to fall in most other countries.
The last MPS introduced monetary targeting to an interest rate-targeting framework.
Secondly, BB intended to introduce a market-driven reference lending rate for all types of bank loans, replacing the previously imposed lending-rate cap.
This move aimed to enhance competitiveness in the banking sector and foster a favorable lending environment for businesses and individuals.
The reference lending rate, known as 'SMART' (six-month moving average rate of Treasury bill)', announced monthly through the BB website, with a margin applied to banks and non-bank financial institutions (NBFIs).
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