FinMin expects manageable inflation, robust reserves by FY24 end

Finance Minister Abul Hassan Mahmood Ali has expressed optimism that inflation will gradually decline to a manageable level by the end of the current fiscal year.

While presenting the budget implementation progress report for the first quarter of the fiscal 2023-24 in parliament yesterday, he also projected a robust recovery in foreign exchange reserves and continued growth in expatriate income by the end of June.

"The country is experiencing significant inflationary pressure due to rising energy costs and fluctuating foreign exchange rates in the international market. However, this pressure will ease by the end of the current fiscal year," the finance minister said.

Amid various measures taken by the Bangladesh Bank and the government, inflation has eased slightly over the past few months but has still remained above 9% since March last year.

To combat inflation, the government has implemented various initiatives, Mahmood Ali said. One key measure is the Bangladesh Bank's transition from a monetary targeting to an interest rate targeting framework, enabling more effective control. This shift has already seen policy interest rate hikes and the removal of loan interest caps.

He said interest rates on short-term and long-term government debt, including Treasury bills and bonds, have risen significantly, reflecting the Bangladesh Bank's move to a flexible interest rate regime.

To mitigate potential negative impacts on vital sectors, the central bank set a margin on the Six-Month Moving Average Rate of Treasury Bill (SMART) rate as the loan interest cap was lifted. This ensures continued access to credit for small and medium industries, agriculture, export-oriented businesses, and cottage industries, supporting ongoing economic growth, he continued.

The finance minister said that in response to the Russia-Ukraine war and the adverse economic situation caused by the current global geopolitical context, Bangladesh is providing various directives on addressing post-Covid challenges, including enhancing the country's export trade in the global market and increasing investment in Bangladesh.

"In order to increase the country's exports, various steps are being taken to diversify products, expand into new markets, ensure quality control, and create new markets abroad," he added.

Mahmood Ali said the government is striving to create a new labour market in addition to the existing ones. Therefore, expatriate income is expected to increase by the end of the current financial year.

Expressing optimism that foreign exchange reserves will soon return to a strong position, he said the current account balance was positive due to the increase in exports, decrease in imports, and rise in remittance income during July-September.

However, foreign exchange reserves have decreased due to the increase in financial account credit. Various measures have already been taken to boost foreign exchange reserves, he added.

The country's reserves have declined to below $20 billion from their peak of $48 billion in August 2021 due to continued selling by the Bangladesh Bank to settle import payments.