Economy on bounceback, monetary tightening continues: BB

No more printing of money or currency swaps with banks while base rates will stay steady as monetary tightening continues in July-December period to tame inexorable inflation.
Bangladesh Bank, the country's central bank, Thursday rolled out half-yearly monetary policy statement or MPS for the July-December period of the current fiscal year with such contractionary stance, which economists take with exception regarding efficacies particularly in inflation control.
The BB leaves its benchmark repurchase rate or REPO rate unchanged at 8.5 per cent--the highest peak at least in past 15 years or the longest such streak meant for reining in the inflation.
Also unchanged are the interest rate corridor (IRC) along with SDF (standing deposit facility) which is the floor rate of the IRC and SLF (standing lending facility), the upper ceiling of the corridor, at 7.0 per cent and 10.0 per cent respectively.
In the prevailing situation on the country's economic front, the regulator will pursue "quantitative tightening" measures through efficient liquidity management for containing inflation.
This tightfistedness means that the central bank will no more print money to fund government and stop currency swaps with banks.
The BB unveiled the MPS for the first half of the fiscal year (FY) 2024-25 through its official website in a digression from its long history of disseminating the monetary policy in press briefing.
Senior central bankers told the FE that they kept the policy rates unchanged as they believe the measures taken in May last have still room for transmission.
"We will monitor the market at least one more quarter and then we will decide as to whether there is necessity for further spikes in the policy rates," said one of them, seeking anonymity.
The MPS argues that three cardinal policy decisions--the introduction of a crawling-peg system in May, the removal of the interest-rate cap under SMART, and the increase in policy rates to 8.5 per cent-worked in the financial-monetary field and so these drivers stay stable.
It states that MPC, the apex body of preparing the monetary policy of Bangladesh, has noted that Bangladesh's economy has gone on a rebound and "the upward trend in inflation has moderated recently".
Also, the crawling-peg system in interest regime has stabilised the exchange rate and contributed to building up foreign-exchange reserves.
"Amid tight liquidity conditions, all interest rates-including those on the money market, deposits, lending, and yields on Treasury bills and bonds-have increased substantially, indicating an effective policy transmission," the MPS reads further in explaining the outcome of the policy interventions on the cusp of transition from a prolonged economic crisis-at home and abroad.
The central bank says it has been maintaining a contractionary monetary policy for over a year, significantly increasing the policy rate and avoiding new 'high-powered money' issuance for government spending.
Also has it instructed banks to maintain minimum cash margins on import LCs for essential, high-demand products to stabilise the commodity market.
It acknowledges that despite some moderations, CPI inflation remained above 9.0 per cent throughout H2FY24-incidentally, in the wake of price rises for so long.
Sluggish domestic demand and signs of financial distress caused by higher interest rates also back the case for the bank to lower borrowing costs to help spur growth in the country.
The central bank has lowered the private-sector credit-growth target for the July-December 2024 to 9.8 percent, down from January-June's 10 per cent, to reduce the credit flow under inflation-combat measure.
It also expects that the "broad money" growth may be 8.2 per cent commensurate with a nominal GDP growth of 10.9 per cent for the fiscal year 2024-25.
Public-sector-credit growth is projected to be 17.8 per cent, considering lower credit demand from the government.
Moreover, the government's FY25 budgetary target to borrow Tk 1.375 trillion from the banking system is also duly considered in projecting the public-sector credit growth.
The central bank expects the economy to grow 6.75 per cent this year, with inflation forecast to average 6.5 per cent at the end of the fiscal.

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