Economy
BB Takes Action to Stabilize Inflation and Dollar Crisis
Bangladesh Bank (BB) is carefully advancing with an optimistic outlook as it strives to alleviate the economic strain caused by the US dollar crisis and soaring inflation, according to the central bank’s quarterly report on the economy. The report highlights the persisting pressure on the economy from external factors, including escalating commodity prices and supply disruptions resulting from the ongoing Russia-Ukraine conflict, global economic slowdown, and financial sector volatility.
The report emphasizes that the issue is linked to geopolitical conflicts and cannot be resolved overnight. Consequently, the report urges banks and other financial institutions to exercise prudence in their future financial plans.
Bangladesh Bank publishes such reports every quarter, providing updated data on the country’s overall economy.
As per the report, Bangladesh is currently grappling with geopolitical conflicts, which have yet to exert a direct negative impact on the economy. Nevertheless, the economy remains under pressure, necessitating cautious measures.
A significant portion of Bangladesh’s economy relies on the United States, Canada, and the European Union, which constitute the primary sources of foreign investment in the country. These regions also account for approximately 82% of Bangladesh’s exports.
Furthermore, 725 of imports originate from India and China, while a substantial portion of remittances flows from the United States. The ongoing geopolitical conflicts pose a risk to Bangladesh’s export earnings and remittances.
In the current geopolitical landscape characterized by tensions between China and the United States, Bangladesh remains prudent in its decision-making process concerning these two countries.
Additionally, the United States has been openly critical of Bangladesh regarding issues of democracy and human rights. Although Bangladesh aims to maintain good relations with all countries, it is not inclined to accept unwarranted criticism from the United States. Notably, Bangladesh’s export income to the United States experienced a decline of around 12% in the past year due to certain restrictions and recent changes in visa policies.
Previously, restrictions imposed by the US, coupled with the recent visa policy changes, redirected remittances from Bangladeshi nationals residing in the United States back to the country, resulting in a sudden surge in remittance inflows.
The report highlights that Bangladesh continues to face the adverse effects of soaring global prices and supply chain disruptions caused by the Russia-Ukraine conflict. The repercussions of these factors persist, along with the ongoing global economic slowdown that stems from the conflict’s impact. While instability in the financial sector has started to subside, the report indicates an increase in liquidity supply within banks.
The Central Bank expresses optimism that the situation will gradually improve in the forthcoming days.
The Dhaka Stock Exchange (DSE) and the DSE Brokers Association (DBA) have expressed gratitude towards Prime Minister Sheikh Hasina for her directive to list government companies in the capital market, a move hailed as timely and positive.
The directive was issued during the recent meeting of the Executive Committee of the National Economic Council (Ecnec) last Thursday.
Dr. Hafiz Muhammad Hasan Babu, Chairman of DSE, described the directive as a significant step towards enhancing the dynamics of the capital market. He emphasized that besides invigorating the capital market, this move would also attract foreign investment and promote sustainable development.
Despite previous efforts, government institutions had not been listed in the stock exchange, according to a notification issued by the DSE. The Prime Minister’s directive is seen as a pivotal step towards revitalizing and expanding the economy.
Dr. Babu further remarked, “The listing of reputable companies in the capital market, as directed by the Prime Minister, will greatly benefit the country’s economy. It will also enhance investor confidence.”
Similarly, the DBA released a notification applauding the Prime Minister’s directive, terming it as positive and timely for the capital market.
Saiful Islam, President of DBA, expressed optimism about the directive’s potential to accelerate the country’s capital market and overall economy. He pledged support to relevant government departments and regulatory bodies in implementing the directive, ensuring its positive impact on the economy, including the capital market.
India has expressed interest in financing Bangladesh’s Teesta project, announced Foreign Minister Hasan Mahmud. Speaking to reporters after a meeting with Indian Foreign Secretary Vinay Mohan Kwatra, Mahmud stressed the importance of aligning the project with Bangladesh’s needs. He confirmed discussions on the Teesta issue during the meeting. Mahmud also affirmed Prime Minister Sheikh Hasina’s upcoming visit to New Delhi, indicating that the finalization of the date would depend on the formation of the new Indian government following ongoing elections.
Meanwhile, the IMF has approved a $1.15 billion staff-level loan for Bangladesh in its third tranche. Mahmud noted the ongoing elections in India and the subsequent formation of the new government as factors influencing the scheduling of PM Hasina’s visit.
When asked about the sequence of visits to India and China, Mahmud suggested Delhi’s geographical proximity to Bangladesh. Diplomatic sources suggest PM Hasina’s visit to India is planned for early July, following India’s elections.
Pre-election surveys indicate strong prospects for Indian Prime Minister Narendra Modi’s re-election. Modi previously congratulated PM Hasina on her electoral victory in January, expressing optimism about strengthening ties between the two nations.
The last bilateral engagement between the prime ministers occurred during the G-20 Leaders Summit in September 2023. Modi is expected to invite South Asian and BIMSTEC leaders to his swearing-in ceremony, fostering regional cooperation.
Addressing border killings, Mahmud emphasized the government’s commitment to ending such incidents and promoting the use of non-lethal weapons by border forces. Discussions also covered enhancing physical and people-to-people connectivity, including cooperation with India to import hydropower from Nepal and Bhutan through India. Mahmud highlighted the need to further ease visa restrictions to strengthen people-to-people relations.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
