Tight monetary policy to stay to bring inflation down to 3-4%: Cenbank chief economist

The tight monetary policy in place will continue as the government is trying to bring inflation down to 3-4% as quickly as possible, said Bangladesh Bank's Chief Economist Mohammad Akhtar Hossain today (28 August).

"[The contractionary monetary policy] must be maintained for some more time," he said while speaking at a seminar titled "Bangladesh Monthly Macroeconomic Insights" organised by the Policy Research Institute (PRI).

Akhtar Hossain noted that inflation is currently hovering between 8-9%, which he described as "not comfortable".

"Our goal will be to sustain inflation at 3-4% in the long term. We will apply all available policy tools, which will help regulate interest rates, maintain monetary discipline, and ensure stability in the macroeconomy," he added.

On the topic of bank mergers, the chief economist noted that consolidation of banks may require Tk30,000 crore, which would be raised through bonds and some foreign assistance.

He further stressed the importance of boosting investment.

"Large-scale investment is not possible with local savings alone, so attracting foreign investment is essential. For that, it is crucial to ensure a business-friendly environment for international companies and maintain political stability," Akhtar added.

The seminar was presided over by Khurshid Alam, executive director of PRI, with Akhtar Hossain attending as the chief guest.

Ahmed Ahsan, director of PRI, was present as a special guest, while the keynote at the seminar was presented by PRI's Chief Economist Ashikur Rahman.

Presenting the country's economic situation, Ashikur noted that for the past two years, Bangladesh had been facing high inflation and a decline in foreign reserves.

"So, measures were needed to prevent the situation from worsening. Over the past year, the economy has become much more stable – the exchange rate has stabilised, inflation is easing, reserves are increasing, and the banking sector is improving," he said.

On the decline in imports of capital machinery, Ashikur argued that this may not only reflect lower investment. "Previously, capital machinery imports were a major channel for money laundering. As such illicit outflows have declined, the import of capital machinery may have also fallen," he observed.

He further noted that, compared with South Asia, interest rates in Bangladesh are not particularly high.

"Here, rates have risen not because of policy interest rates, but due to political instability. Trying to attract investment without first reducing inflation would be even riskier," he warned.

On bank mergers, PRI's chief economist cautioned that lobbying has started afresh to resist the move for private bank mergers. "Merging banks is a very difficult issue politically," he added.

He also pointed out that wages have risen at a slower pace than inflation, which is contributing to rising poverty.

Chairing the event, PRI Executive Director Khurshid Alam said, "Employment and growth momentum remain weak, and revenue collection is low. But the economy has stabilised and is moving in the right direction."

Former NBR chairman Md Nasir Uddin, Bangladesh Chamber of Industries President Anwar-ul Alam Chowdhury Parvez, and entrepreneur Habibullah N Karim also joined as discussants.