Economists advise cenbank to safeguard reserves, hold policy rate amid global uncertainty

As escalating geopolitical tensions in the Middle East create uncertainty over global economic stability, Bangladesh's top eight economists have advised the central bank to preserve foreign currency reserves, hold off on cutting the policy interest rate for now, and closely monitor unusual fluctuations in the dollar market.

These recommendations were made during a meeting at Bangladesh Bank today (7 March) with Governor Mostaqur Rahman, confirmed by spokesperson and executive director Arif Hossain Khan. The economists noted that the full impact of the Iran-US standoff remains unclear, but warned that if the crisis continues, it could disrupt fuel supplies, affect remittance inflows, and place additional pressure on the dollar market, underscoring the need for a cautious approach.

They insisted that the central bank should protect foreign currency reserves and avoid unnecessary expenditure, particularly on import financing. To mitigate potential risks in fuel supply, they suggested reducing reliance on the Middle East and exploring alternative sources, including examining the possibility of importing fuel from Brunei, Singapore, and other countries if necessary.

Even with rising global fuel prices, they recommended refraining from immediately passing these costs to consumers, cautioning that such action could worsen inflation and destabilise the broader economy. With inflation already high, the economists said lowering the policy interest rate now would not likely stimulate investment, and any reduction should be considered only after global conditions stabilise to encourage growth.

The group also urged accelerating disbursement of loans pledged by the World Bank and other development partners and exploring additional financing from the Islamic Development Bank to support fuel imports. They highlighted that rising tensions in the Middle East could disrupt remittance flows if workers face travel restrictions, stressing that processes should be streamlined to ensure those willing to send money home can do so efficiently.

Acknowledging that global shocks may be unavoidable, the economists advised policymakers to focus on minimising potential economic damage. Governor Mostaqur Rahman, according to multiple sources, pledged to act with integrity, make decisions free from political influence, and encourage banks to do the same. They also recommended forming a special committee to monitor economic developments, analyse trends, and advise policymakers, reducing the risk of panic-driven market reactions.

A source present at the meeting, speaking to The Business Standard on condition of anonymity, said the economists emphasised three core points: foreign reserves should not be depleted because substantial dollars are needed for importing essential goods beyond fuel; the policy interest rate should not be reduced under current conditions, as businesses are unlikely to invest; and the central bank should remain vigilant to prevent abnormal spikes in the dollar rate.

The meeting follows Governor Mostaqur Rahman's initial move to lower the policy rate after taking office on 26 February, which was postponed following the resignation of a Monetary Policy Committee member and objections from economists. The ongoing US-Iran confrontation has created fresh uncertainty over global fuel supply and pricing, prompting the central bank to convene leading economists to assess potential economic impacts.

Officials present from the Bangladesh Bank included the governor, four deputy governors, and senior officials. Economists attending the meeting were Mustafizur Rahman, fellow at CPD; Fahmida Khatun, executive director at CPD; former cenbank chief economist Mustafa K Mujeri; Mohammad Abdur Razzak, chairman of RAPID; Selim Raihan, executive director of Sanem; Masrur Riaz, chairman of Policy Exchange Bangladesh; AK Enamul Haq, director of Bids; and Najmus Sadat Khan, senior economist at the World Bank Dhaka office.