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Cenbank Raises Policy Rate to 8% to Combat Inflationary Pressures

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The Bangladesh Bank has implemented a 25 basis points hike in the policy rate, raising it from 7.75% to 8% as part of the newly unveiled monetary policy for the second half (January-June) of FY24.

Bangladesh Bank Governor Abdur Rouf Talukder announced a contractionary policy stance aimed at tightening the money supply to address inflation concerns. The central bank introduced a new exchange rate mechanism called the crawling peg. To curb money supply and private sector credit growth, all monetary targets were downgraded, reducing the target for June to 10% from the existing 11%. Challenges such as global fuel price dynamics, Middle East instability, international commodity prices, inflation control, exchange rate stability, and non-performing loans were highlighted by the central bank.

The policy was disclosed less than a week after the formation of the new government, with Prime Minister Hasina emphasizing the government’s commitment to combating inflation. Bangladesh Bank spokesperson Mezbaul Haque noted the continuation of the contractionary trend to control inflation and emphasized the bank’s focus on corporate governance to ensure depositor security.

Despite measures taken to control inflation to 8% by December, recent data from the Bangladesh Bureau of Statistics indicates that inflation stood at 9.41% in the month. The central bank governor expressed hope that inflation would decrease to 6% by June 2024. In the first half of FY24, the shift from a money supply-based to an interest rate-based monetary policy saw a 50 basis points increase in the repo rate to 6.5%.

However, multiple increases in the policy rate over the last six months reflect challenges in controlling inflation. The monetary policy for the first half of FY24 included reforms such as a policy interest rate corridor, reference interest rate for lending, exchange rate unification, and a revised method for calculating gross international reserves.

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Cenbank Prolongs Import Payment Terms for Raw Materials Until Dec 2024

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The Bangladesh Bank (BB) has announced an extension for the payment period against imports of industrial raw materials from 180 to 360 days, a measure now set to remain in place until December 2024. This policy, initially scheduled to end in June of this year, has been prolonged to facilitate trade transactions, according to a BB circular issued today.

“To support trade transactions, it has been decided to extend the policy support until December 31, 2024. The extended usance period will not apply to imports under EDF loans, as previously stipulated. All other relevant instructions remain unchanged,” the circular stated.

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Banks in Industrial Areas to Open June 14-16 for Eid Payments

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To ensure timely payment of salaries and bonuses to garment industry workers before Eid-ul-Azha, the branches of banks in key industrial areas will remain open on a limited basis on June 14, 15, and 16.

The Bangladesh Bank (BB) issued a notification stating that bank branches in Dhaka metropolitan, Ashulia, Tongi, Gazipur, Savar, Bhaluka, and Narayanganj will operate on these days to facilitate financial transactions for garment sector employees.

Typically, Friday and Saturday (June 14 and 15) are weekly holidays, and Sunday (June 16) will be closed for Eid. Despite these closures, the BB has mandated that banks in industrial regions stay open to manage the disbursement of wages and bonuses and facilitate the sale of export bills.

Additionally, bank branches in Chattogram metropolitan and industrial areas will also be open to support garment workers’ payments and the processing of export bills.

The BB has instructed banks to coordinate with local authorities to ensure adequate security at the branches during this period.

Eid-ul-Azha, one of the most significant religious festivals for Muslims, will be celebrated in Bangladesh on June 17.

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Cenbank Mandates Real-Time Reporting of Willful Defaulters

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The Bangladesh Bank (BB) has issued new instructions to banks to submit data on willful defaulters to the Credit Information Bureau (CIB) database. This directive was issued on Tuesday, requiring immediate compliance from commercial banks and non-banking financial institutions (NBFIs).

In a circular released by the CIB of the central bank, banks have been instructed to report their June data in real-time starting July 1. The circular has been sent to top executives of banks for prompt execution.

This move follows an earlier initiative by the BB, outlined in a circular on March 12, aimed at identifying willful defaulters within the banking sector. The central bank also detailed actions to be taken against such defaulters.

According to the circular, any client who takes a loan anonymously and misuses it will be classified as a willful defaulter. Banks were directed to establish a ‘willful defaulter identification unit’ by April 9 to facilitate this identification process.

The circular further stipulates penalties for non-compliance. Banks that violate these conditions will face fines ranging from Tk 50 lakhs to Tk 1 crore. Continued violations will incur additional fines of Tk 1 lakh per day.

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