Contractionary monetary policy to continue to tame inflation: BB governor

Bangladesh Bank Governor Abdur Rouf Talukder said the monetary policy will be aligned with fiscal policy to control inflation, and the contractionary monetary policy will continue.

The governor said this in a meeting with stakeholders on Wednesday ahead of the monetary policy announcement for the first six months (July-December) of fiscal 2024-25.

"In the last two monetary policies, we have shifted from a money supply-based approach to an interest rate-based approach. We hope to bring inflation down to below 7% this fiscal year," he said.

Four deputy governors, Dhaka University Economics Professor Sayema Haque Bidisha, economist Professor Abu Yousuf, the Association of Bankers, Bangladesh Chairman Selim RF Hussain, and Sonali Bank Managing Director Md Afzal Karim, among others, were present at the meeting.

"We told the governor there was a huge mismatch in the export data that has been coming out recently," a stakeholder present at the meeting told The Business Standard.

A review of data from the Export Promotion Bureau shows that there was an export mismatch of around $65 billion in the last ten years.

"The overall economy of our country is not going well. All the policies we are taking to control inflation at this time are not functioning, although our interest rates are increasing," he quoted another participant saying at the meeting.

He said this mismatch in the export data has been influenced by those involved in policymaking in the country.

An official of the central bank who was present at the meeting told TBS, "The governor said, in view of this, we have adjusted the export data mismatches. We also have an initiative to reconcile any mismatch in the information on defaulted loans."

Saiful Islam, acting spokesperson for the Bangladesh Bank, said, "We had a meeting with stakeholders before announcing the monetary policy. No decision has been made yet. We have taken note of the suggestions given to us by economists. We will consider those that are required for our policy."

The Bangladesh Bank has primarily fixed 18 July for the monetary policy announcement. It will be passed in the board meeting of the Bangladesh Bank on 16 July. Before that, the main committee will meet on 14 July regarding the monetary policy announcement.

IMF estimates a peak policy rate of 9%

Monetary policy should continue to focus on addressing internal imbalances. Still elevated inflation and inflation expectations will require continued monetary policy tightening until inflation consistently slows down to the Bangladesh Bank's medium-term target range of 5-6%, according to the IMF report.

According to IMF estimates, the policy rate may need to increase to a peak of 9% from the current 8.5% currently by mid-FY25 to tame inflation to 7% by end-FY25 and bring it close to 5.5 by end-FY26. The elimination of the SMART benchmark rate for retail interest rates will enhance the effectiveness of monetary policy transmission.