Funds are becoming costlier as the central bank plans to double down on policy rate by hike twice in quick succession, principally as inflation stays stubbornly high and prices exorbitant.
As part of the contractionary monetary stance to contain inflation, the Bangladesh Bank (BB) will raise policy or repo rate this week before making another upward revision by next month as well.
The new BB governor, Dr Ahsan H. Mansur, Monday disclosed the desperate remedy for the desperate situation while sharing the central bank's current inflation-combat plan at a press briefing at the BB headquarters.
"A contractionary monetary policy will be followed as long as the inflation does not come under control. The policy rate will be hiked once this week and again next month," he said.
The governor expresses his optimism about being able to bringing down the inflationary pressure in few months. "I don't know where the level of inflation will stand after the domino effect of the rise in interest rate but we (the central bank) will continue tuning our monetary policy to control the inflation," he told reporters.
The central bank governor pinpointed three major priority areas - containing inflation, stabilising balance of payments and exchange rate-to be addressed as quickly as possible.
Simultaneously, the government is curtailing budgetary expenses. As part of getting tightfisted, the government bank borrowing target to finance budget deficit to be pegged within Tk 850 billion from the previously projected Tk 1.37 trillion.
"If it happens, the fiscal policy will also be tightened like the monetary policy and these will help stabilise the country's macroeconomic situation," he said.
The economist-turned regulator admits that the development will certainly impact the country's overall economic growth. "If we can achieve over 5.0-percent growth, that will be satisfactory for us," he says.
On the other hand, the governor notes, the exchange rate becomes stable on the market now. If it continues in the next five to six months, that will help lessen inflationary pressure. Later, they can think about growth-resumption affairs.
With the rise, the cost of formal credits will further increase and that will hurt the private enterprises.
Earlier on August 25, 2024, the central bank under the interim regime enhanced policy rate by 50 basis points to 9.0 per cent.
About the outcomes of second meeting the taskforce held on the day for brining reforms in the banking industry, he said they decided to bring internationally-recognised experts to properly assess major indicators like asset situation, recovering non-performing assets and actual value of the collaterals
He said global agencies like the World Bank, ADB, USAID and UK-based The Foreign, Commonwealth and Development Office (FCDO) will help them in this regard.
With their assistance, the taskforce, equipped with officials from BB's audit and inspection departments and hired audit officials, will initially start its assessment in three problem banks.
Of the three banks at risk, the governor named one in a desperate situation-Islami Bank Bangladesh-which was dispossessed and hollowed by an acquisitive business group.
Thereafter, he said, it will take another three banks in the next phase and another three in the third phase in the salvage process.
"By doing so, we will oversee all the banks. And we want to supervise the whole proceedings with the international experts having enough knowledge regarding the matter."
About the possible mergers, the central bank governor said they have the plan to bring down the number of the banks here with coupling. "Merger is something that generally protects the depositors. We also do the same. Merger is not a negative thing in the depositors' perspective," he added.
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