Fiscal policy needs to be aligned with monetary stance | The Business Standard
Skip to main content
  • Latest
  • Economy
    • Banking
    • Stocks
    • Industry
    • Analysis
    • Bazaar
    • RMG
    • Corporates
    • Aviation
  • Videos
    • TBS Today
    • TBS Stories
    • TBS World
    • News of the day
    • TBS Programs
    • Podcast
    • Editor's Pick
  • World+Biz
  • Features
    • Panorama
    • The Big Picture
    • Pursuit
    • Habitat
    • Thoughts
    • Splash
    • Mode
    • Tech
    • Explorer
    • Brands
    • In Focus
    • Book Review
    • Earth
    • Food
    • Luxury
    • Wheels
  • Subscribe
    • Get the Paper
    • Epaper
    • GOVT. Ad
  • More
    • Sports
    • TBS Graduates
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • Gallery
    • Long Read
    • Interviews
    • Offbeat
    • Magazine
    • Climate Change
    • Health
    • Cartoons
  • বাংলা
The Business Standard

Monday
July 21, 2025

Sign In
Subscribe
  • Latest
  • Economy
    • Banking
    • Stocks
    • Industry
    • Analysis
    • Bazaar
    • RMG
    • Corporates
    • Aviation
  • Videos
    • TBS Today
    • TBS Stories
    • TBS World
    • News of the day
    • TBS Programs
    • Podcast
    • Editor's Pick
  • World+Biz
  • Features
    • Panorama
    • The Big Picture
    • Pursuit
    • Habitat
    • Thoughts
    • Splash
    • Mode
    • Tech
    • Explorer
    • Brands
    • In Focus
    • Book Review
    • Earth
    • Food
    • Luxury
    • Wheels
  • Subscribe
    • Get the Paper
    • Epaper
    • GOVT. Ad
  • More
    • Sports
    • TBS Graduates
    • Bangladesh
    • Supplement
    • Infograph
    • Archive
    • Gallery
    • Long Read
    • Interviews
    • Offbeat
    • Magazine
    • Climate Change
    • Health
    • Cartoons
  • বাংলা
MONDAY, JULY 21, 2025
Fiscal policy needs to be aligned with monetary stance

Supplement

Dr Salehuddin Ahmed
31 May, 2023, 11:15 am
Last modified: 31 May, 2023, 12:11 pm

Related News

  • FY26 monetary policy: To ease when is the question
  • Can offshore financial centres be a viable monetary policy tool?
  • Bangladesh Bank may seek to delay IMF’s default loan policy
  • Policy tools alone cannot control inflation
  • Bangladesh's Monetary Policy for H2 2025: Controlling inflation and strengthening banking sector

Fiscal policy needs to be aligned with monetary stance

Dr Salehuddin Ahmed
31 May, 2023, 11:15 am
Last modified: 31 May, 2023, 12:11 pm
Dr Salehuddin Ahmed. Illustration: TBS
Dr Salehuddin Ahmed. Illustration: TBS

The fiscal policy of the government needs to be aligned with the monetary policy to meet the challenges of controlling inflation, financing industrialisation and reducing the pressure on foreign exchange reserves and exchange rates.

The government is putting these two policies into conflict by preparing to implement a large budget dependent on borrowing, while reducing the interest rate on national savings certificates in the name of reducing expenses and imposing caps on the interest rate of bank loans.

It is obvious that the main focus of the upcoming budget should be on controlling inflation, but monetary measures alone like raising interest rates will not work sufficiently to achieve the target as the origin of the ongoing inflation is from the supply side, not demand.

The Business Standard Google News Keep updated, follow The Business Standard's Google news channel

The Bangladesh Bank should increase the supply of credit with some control, targeting the productive sector. Loan approval in the hospitality and trading sector should be tightened.

It is the reality that our banking system historically denies providing loans for small industries. Special attention should be paid to increasing the supply of money to cottage, micro, small and medium enterprises (CMSMEs).

Such companies produce daily essential commodities from food to other products. Import substitute products of CMSMEs would help to reduce pressure on the forex reserve and exchange rate also.

Adequate flow of money to labour-intensive small enterprises could help speed up the economy by creating domestic demand through boosting employment and income of people.

There is still a cap on interest rates in the banking sector, which should be removed completely and the interest rate should be left to the market.

Even if loans are disbursed at 9% interest rate, the real interest rate comes down to around 0% considering the current rate of inflation. There is no justification for giving loans so cheaply to big and solvent businesses.

By lifting the cap, the interest rate should be determined based on the cost of funds, with the addition of operation cost and some profit of the banks.

But it is not right to allow the interest rate to go up to 18-20%. In my opinion, the spread between the interest of a deposit and a loan should be 3-5 percentage points.

Instead of a cap on deposits and interest rates, monitoring and supervision should be increased to implement spread rates. As a result, credit demand will be somewhat controlled and supply will also increase slightly.

The government borrowing from the banking system is increasing recently. The government should borrow as little as possible from banks for financial stability. But the problem is, the Bangladesh Bank is not able to say it directly.

There is already some liquidity crunch in the banking sector. People are also keeping fewer deposits. In this situation, the increase in public debt from banks will reduce the flow of credit to the private sector.

The deficit should be kept in control by reducing unnecessary allocations and domestic resource mobilisation should be enhanced to reduce the deficit. People should be encouraged to save by providing a justified interest rate on savings certificates.

Non-performing loans are increasing in the banking system, which is supposed to be controlled through monetary policy. However, the government has to take a decision on increasing the supervision in the banking sector to control it.

Several banks, especially government-owned banks, are now suffering from funding crunch due to unregulated lending. Loss-making banks should not be recapitalised by budgetary allocation. Why will the people's money be given to a bank that failed in business? The lending operations of such banks should be limited to the extent that they mobilise deposits.

 

fiscal policy / Monetary Policy / In search of money

Comments

While most comments will be posted if they are on-topic and not abusive, moderation decisions are subjective. Published comments are readers’ own views and The Business Standard does not endorse any of the readers’ comments.

Top Stories

  • TBS Illustration
    US tariff: Dhaka open to trade concessions but set to reject non-trade conditions
  • Representational image. Photo: TBS
    High US dependence may bring over 250 RMGs to edge as high tariff looms 
  • Photo: Collected
    BNP alleges arrests, harassment of innocent civilians in Gopalganj's Kotalipara

MOST VIEWED

  • Photo: Mohammad Minhaz Uddin
    Ctg port to deliver 16 more products via private depots to ease congestion
  • A roundtable titled ‘US Reciprocal Tariff: Which Way for Bangladesh?’, held at a hotel in Dhaka on 20 July 2025, organised by Prothom Alo. Photo: TBS
    Things don’t look good for Bangladesh: US brands warn exporters amid tariff hike
  • Infograph: TBS
    Liquidation of troubled NBFIs may cost govt Tk12,000cr in taxpayer money
  • File Photo: Debapriya Bhattacharya, head of the White Paper Committee, speaks at a press conference at the planning ministry in Dhaka on Monday, 2 December, 2024. Photo: Collected
    Govt’s NDA signing a first of its kind in Bangladesh’s history: Debapriya on US tariff talks
  • Infograph: TBS
    Dhaka to seek G2G coal import, investment in solar plants during CA’s visit to Jakarta
  • On behalf of the Bangladesh government, Director General of the Directorate General of Food Md Abul Hasanath Humayun Kabir signed the MoU, while Vice President of US Wheat Associates Joseph K Sowers signed on behalf of the United States. Photo: Courtesy
    Bangladesh signs MoU to import 7 lakh tonnes of wheat annually from US for 5 years

Related News

  • FY26 monetary policy: To ease when is the question
  • Can offshore financial centres be a viable monetary policy tool?
  • Bangladesh Bank may seek to delay IMF’s default loan policy
  • Policy tools alone cannot control inflation
  • Bangladesh's Monetary Policy for H2 2025: Controlling inflation and strengthening banking sector

Features

Despite all the adversities, girls from the hill districts are consistently pushing the boundaries to earn repute and make the nation proud. Photos: TBS

Despite poor accommodation, Ghagra’s women footballers bring home laurels

9h | Panorama
Photos: Collected

Water-resistant footwear: A splash of style in every step

11h | Brands
Tottho Apas have been protesting in front of the National Press Club in Dhaka for months, with no headway in sight. Photo: Mehedi Hasan

From empowerment to exclusion: The crisis facing Bangladesh’s Tottho Apas

1d | Panorama
The main points of clashes were in Jatrabari, Uttara, Badda, and Mirpur. Violence was also reported in Mohammadpur. Photo: TBS

20 July 2024: At least 37 killed amid curfew; Key coordinator Nahid Islam detained

1d | Panorama

More Videos from TBS

Hasina government's close associates are giving up ownership of property in the UK

Hasina government's close associates are giving up ownership of property in the UK

7h | Others
Sculptor Hamiduzzaman Khan's death marks the end of a colorful life

Sculptor Hamiduzzaman Khan's death marks the end of a colorful life

7h | Others
News of The Day, 20 JULY 2025

News of The Day, 20 JULY 2025

8h | TBS News of the day
Are good relations being developed between political parties?

Are good relations being developed between political parties?

7h | TBS Stories
EMAIL US
contact@tbsnews.net
FOLLOW US
WHATSAPP
+880 1847416158
The Business Standard
  • About Us
  • Contact us
  • Sitemap
  • Advertisement
  • Privacy Policy
  • Comment Policy
Copyright © 2025
The Business Standard All rights reserved
Technical Partner: RSI Lab

Contact Us

The Business Standard

Main Office -4/A, Eskaton Garden, Dhaka- 1000

Phone: +8801847 416158 - 59

Send Opinion articles to - oped.tbs@gmail.com

For advertisement- sales@tbsnews.net