The Bangladesh Bank is set to implement the crawling peg system for exchange rates, a move widely considered positive when adjusted to the real effective exchange rate. While this method is viewed favorably, there are suggestions that a more aggressive approach to raising policy rates, possibly by 100 basis points instead of the proposed 25, could better address inflation concerns.
Gradual Repo Rate Increases Questioned: Advocacy for Monthly Adjustments
Critics argue that the gradual increase in the repo rate may not effectively control inflation. Proposals for a more structured approach, involving a consistent monthly increment in the policy rate, are suggested as a potential solution to bring various economic factors under control.
Inflation Target of 7.5% Raises Questions Amidst Partner Discrepancy
The central bank aims to bring down inflation to 7.5% in the current fiscal year, with further initiatives to achieve a 6% target. However, concerns arise as credit partners recommend inflation rates between 2-4%, indicating potential inconsistencies in the proposed targets.
SMART Rate Introduction for Consumer Loans Faces Implementation Challenges
Despite the introduction of the SMART rate for consumer loans, calculated based on the six-month average rate of Treasury bills and bonds, its effectiveness in banks is questioned. The current SMART rate hovers around 12%, with concerns about the inconsistent implementation of the 10% loan interest rate.
Dollar Crisis and Banking Sector Reforms Raise Concerns
Concerns are raised over the lack of substantial steps to address the ongoing dollar crisis. Advocates suggest that a significant increase in the dollar rate could attract more inflow and improve the financial account. The banking sector also faces challenges, with a notable absence of effective reforms, leading to capital shortfalls in fifteen banks and a surge in defaulted loans. Implementation of policies is emphasized as crucial for addressing these issues.
Ahsan H. Mansur
Economist and Director of Policy Research Institute of Bangladesh
