New monetary policy for second half of FY24 coming tomorrow

With an eye on taming inflation, the Bangladesh Bank is set to announce the monetary policy for the second half (January-June) of the current fiscal year 2023-24 on Wednesday (16 January). 

According to officials of the central bank, there will be several changes to the policy for controlling inflation. 

There may be an increase in the lending policy rate to banks, incorporation of the new exchange rate formula and even a reduction in the private sector loan growth target. 

Governor Abdur Rouf Talukder will announce the monetary policy at the bank's Jahangir Alam Conference Hall tomorrow at 3pm, the banking regulator said in a press statement today (16 January).

Speaking to The Business Standard, Bangladesh Bank spokesperson Mezbaul Haque said the central bank will continue its contractionary trend to control inflation. 

Besides, they will also focus on ensuring good corporate governance.

"I have started working on corporate governance. It will continue in the new year as well. The Bangladesh Bank will take any action for the interest of the depositors, because the main task of the Bangladesh Bank is to provide security to depositors."

A senior official of Bangladesh Bank said there were many challenges in the country in 2023. 

He said from the beginning of the current fiscal year 2024, interest rates on bank loans have been market-based, although those were capped at a single rate from April 2020. 

Besides, the policy rate has been increased several times to control inflation.

He also said it is expected that inflation will come down to 6% during the rest of the current fiscal year with the measures being mulled.

Although the central bank governor earlier said they had taken steps to control inflation to 8% by December, the latest data of the Bangladesh Bureau of Statistics shows that inflation stood at 9.41% in the month.

The governor also hoped that inflation would fall to 6% by June 2024.

In the first six months of the FY24, a shift was made from a money supply-based monetary policy to an interest rate-based monetary policy.

In the monetary policy announced for the first half of the current fiscal, the repo was raised by 50 basis points to 6.5%. 

However, due to not being able to control inflation by increasing the repo, the policy rate was increased several times in the last six months. Finally, on 27 November, the rate was increased by 50 basis points to 7.75%.

In the monetary policy for the first half of FY24, adopting a contractionary monetary policy stance tightening money flow to the private sector and lowering the private sector credit growth projection to 11% for FY24 from the previous target of 14.1% set for FY23. 

The monetary policy introduced four key reforms, including the implementation of a policy interest rate corridor, a reference interest rate for lending, exchange rate unification, and a revised method of calculating the gross international reserve in accordance with the Balance of Payment and International Investment Position Manual (BPM6)