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MPS raises policy rate again,
Despite optimism, uncertainties remain. |
Bangladesh Bank has unveiled second Monetary Policy Statement (MPS) to fight inflation. The MPS aims to bring down inflation to 7.5% at the end of FY 24 while anticipating a GDP growth rate of 6.5%. Government claims inflation slightly eased to 9.41% in December ’23 from 9.48% in November ’23. However, rice market shows a steady rise in prices. Meat market particularly beef experiences increase in prices after failure of concerted efforts to bring it down to Taka 600/kilo. In general, food inflation has not lowered to a tolerable level yet. Lowering of non-food inflation, caused by regulated imports, contributed to the slight improvement in inflation.
Bangladesh Bank recorded that consumer credit growth fell and became around 15% in 2023 than 27% in 2022. That means a fall in demand is likely to improve the inflationary situation in the future.
Crucial thing is Bangladesh Bank raised the policy rate by 0.25% ,making it 8% from 7.75%. The raise is small. I think after looking at the January inflation data it may raise the repo rate further. It lowered the standing lending facility (SLF)rate by 0.25%,making it 9.50%, and raised standing deposit facility (SDF) rate to 6%. Lowering of SLF rate indicates that the need for banks for emergency resort to the central bank will not wither away soon. That means liquidity crisis of the banks may persist in the remaining half of this fiscal year.
Bangladesh Bank also introduces exchange rate band corridor system, known as crawling peg, as a step before fully moving to floating exchange rate system . However, the difference between the official and unofficial rate is still more than Taka 10 and some economists remain skeptic about its effectiveness.
Bangladesh Bank projects that private sector credit growth will be 10% ,lower than 11% projected earlier. Public sector credit growth also lowered to 27.8% from 31%. This is in line with the measures to curtail money flow.
Bangladesh Bank governor remains optimistic about overcoming problems related to political uncertainties. He is optimistic that multilateral donors and investors will go ahead with their plans and pledged money will continue to come. Political uncertainties are still there as thousands are still in prison and no reconciliation has been reached between the two major parties. European Union Election monitoring team is still in the town and prepare their report ,which will decide future course of its relations with Dhaka. European Union head in Bangladesh while talking to journalists made it clear that EU will work with Bangladesh based on this report. Last week factories in Dhaka and Chattogram EPZs witnessed forced closures as crestfallen workers are not happy with the new wages. Not only that economist Rehman Sobhan compelled to pen an opinion piece in defense of Nobel Laureate Professor Yunus, sentenced to six months imprisonment by labor court in a so called violation of labor right, calling the whole trial decaying governance and biased. He fears similar oppressive moves against independent and objective voices. US sanctions still loom large after the one-sided election. In addition, a survey by World Economic Forum reveals that 87% economists think there will be uncertainties in the coming months. Insurance premium for container vessels has gone up after several ships came under attack in the red sea. Our RMG export to EU relies on this route. It is too early to tell confidently that governance is improved and uncertainties are gone.
I anticipated a big raise like the previous 0.75% in policy rate. Anyway in future months we may see more raises if inflation is not tamed. Containing food inflation should be the main focus right now.
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