Curtailing high-powered money supply in the economy now comes under government consideration as a means to contain inflation as consumer woes compound amid steep commodity prices, sources say.
Bangladesh Bank has switched over its policy on injection of high-powered or print money into government accounts to rein in growing inflationary pressure, officials said.
The shift from facilitating government's domestic borrowing through devolvement mechanism comes after criticisms by economists and money-market analysts who think the growing dependence on the newly circulated credits supplied by the central bank will stoke up inflation and badly affect the people.
To meet budgetary shortfalls because of less-than-expected receipt of revenue incomes, the government has enhanced its domestic borrowing, particularly from the banking system, since early last fiscal.
As the country's commercial banks have been facing difficulties in carrying out regular banking operations amid liquidity dearth mainly because of buying too many US dollars from the central bank to settle their overseas transactions due to persisting forex shortfalls, the BB met major share of government bank-borrowing requirement through supplying the print money to lessen pressure on banks.
But the rates of both general and food inflation continue growing, to reach 9.92 per cent and 12.54 per cent respectively at the end of August 2023. And the growing trend forced the central bank into a rethink.
According to latest statistics of the country's central bank, the net volume of 'devolvement' carried out by the BB stood at Tk 797 billion in the FY'23, in a quantum leap by Tk 510 billion from the previous fiscal year's Tk 290 billion.
But starting from this ongoing financial year (FY'2024), the pace of high-powered money's share slowed significantly as the volume of devolvement-driven fund push was Tk 137.20 billion in July 2023.
The volume plummeted further in August with Tk 56.28 billion in the reverse swing.
Within first 13 days of this September, not a single penny from the newly-circulated money was injected by the central bank.
Seeking anonymity, a BB official said the central bank changed its policy with the lessening of the volume of the high-powered money injection to contain the inexorable inflation.
"If we see the print-money-related data in very recent months, the policy shift will become clear. A total of Tk 193.48 billion high-powered money was injected into the market in July and August. But the government repaid Tk 139.67 billion to the BB after the maturity," the official said.
In the first 13 days of September, the BB did not push a single note. Instead, the government paid back Tk 22.21 billion. "So, the net outstanding of devolved money so far this fiscal is Tk 30.88 billion," the official said.
With the calculation, the overall net outstanding of print money amounted to Tk 828.50 billion.
Another central banker, who also preferred not to be quoted by name, said the government also cut back on its domestic bank-borrowing requirements in recent months.
Citing data, the official said the government domestic borrowing from the banking system was Tk 400 billion in July and Tk 390 billion in August. "The government has planned to borrow Tk 320 billion from the banking system this month through issuing government securities - Treasury Bills and Bonds."
The official thinks the policy shift will not impact the commercial banks whose liquidity situation improves in recent times with growing deposits and lesser demand for funds from the private sector.
"That's why the banks are not placing higher rates to get their bids accepted at the auctions," the central banker added.
Talking to the FE, Dr. M. Masrur Reaz, Chairman of Policy Exchange of Bangladesh, said the decision on minimising share of print money is highly expected especially at a time when the economy is passing through a higher- inflation regime.
"The BB should let the bank-borrowing matters to the commercial banks without any intervention as high-powered money is one of the worst elements that fuel up inflation," he says.
He suggests that the government need to be more calculative as part of its austerity measures skipping less-priority projects that will help lessen the pressure further on the banks.
Contacted for his view, former lead economist at the World Bank's Dhaka office Dr Zahid Hussain said the trend in government's domestic borrowing normally slows down from starting of a financial year as the pressure of implementing ADP is not higher.
"So, I don't know how long the BB will stick to its plan of reducing injection of high-powered credits," he said.
"If the BB continues to stick to its decision of not circulating the print money, it alone would not be able to reduce the inflation."
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