Market-led reforms to ease financial stress

In recent months, our financial sector ecosystem has encountered significant challenges due to certain interventions that caused unsustainable distortions in both exchange and interest rates. These interventions resulted in short-term fixes that further strained the existing structures, exacerbating the issues at hand.

However, the central bank has seized the opportunity with the new Monetary Policy Statement (MPS) to take the initial steps in alleviating this stress and transitioning towards a market-driven approach. 

While the policy retains some aspects of the previous regime, it also incorporates important changes that hold the potential for positive outcomes in the face of the current global interest rate and inflation volatility.

By allowing a greater role for market mechanisms in determining rates, overall stability can be achieved, while also acknowledging the specific needs of special sectors, as evident in the MPS. This shift signifies a move towards a more balanced and sustainable financial environment.

Mohammad A (Rumee) Ali is former deputy governor of Bangladesh Bank

Disclaimer: The content was prepared by TBS correspondent based on an instant reaction over the phone following the announcement of the new monetary policy for the first half of fiscal 2023-24.