The latest Monetary Policy Statement (MPS) has rightly recognised that inflation in Bangladesh remains largely driven by supply-side constraints, making the decision to keep the policy rate unchanged at 10 per cent a prudent one, according to M Mashrur Reaz, chairman and chief executive officer of Policy Exchange Bangladesh.
Speaking with The FE on the newly announced monetary policy, Reaz said the central bank’s acknowledgement that inflation is primarily supply-driven is one of the statement’s most significant features.
“Despite recognising that supply-side factors remain the primary driver of inflation, Bangladesh Bank has decided to keep the policy rate unchanged at 10 per cent. I believe this is a prudent decision,” he said.
He suggested maintaining the current policy rate until December before reassessing the scope for any reduction, noting that while inflation is largely driven by supply-side pressures, the role of monetary policy and its transmission mechanism should not be overlooked.
Reaz also welcomed Bangladesh Bank’s initiatives to improve the management of non-performing loans, particularly its move away from repeated loan rescheduling.
“Frequent rescheduling merely delayed the recognition of underlying problems instead of resolving them. The one-time settlement approach offers a better mechanism for resolving defaulted loans and deserves support,” he said.
He also described the decision to leave the rates under the Standing Deposit Facility (SDF) and the central bank’s lending and borrowing windows unchanged as a positive step.
However, Reaz said the MPS should have provided a clearer roadmap for addressing insolvent banks and non-bank financial institutions.
“There should have been greater clarity on how financially unviable institutions will be handled in the coming years, whether through resolution, mergers, acquisitions, consolidation or, where necessary, closure. The policy should also spell out how depositors’ interests will be protected during the process,” he said.
Welcoming the government’s commitment to enact the long-pending Money Loan Court Act and the Distressed Asset Management Company Act, he described both as important legal reforms.
At the same time, he said the reform agenda should also include amendments to the Bangladesh Bank Order to strengthen central bank independence and the Bank Company Act to improve corporate governance in banks and financial institutions.
“Incorporating these reforms would have made the legal reform package far more comprehensive,” he said.
Overall, Reaz said the monetary policy contains several positive initiatives but would have been stronger with clearer guidance on banking sector resolution and a broader financial sector reform agenda.
Referring to Bangladesh Bank’s commitment to support the government’s macroeconomic objectives, including reducing inflation to 6.5 per cent and achieving 6.5 per cent GDP growth, Reaz said maintaining price stability and containing inflation remain the central bank’s primary responsibilities.
He, however, cautioned that the inflation and growth targets set in the national budget appear highly ambitious under the current economic conditions.
“Rather than focusing on achieving targets that may not fully reflect prevailing realities, the central bank should prioritise a gradual and sustainable reduction in inflation,” he said.
Reaz added that even if GDP growth falls short of the 6.5 per cent target, increasing growth from around 4 per cent to about 5 per cent this fiscal year would still represent meaningful progress.
To achieve that, he said, Bangladesh Bank should focus on strengthening macroeconomic fundamentals by improving the external sector, restoring balance-of-payments stability, safeguarding foreign exchange reserves and maintaining exchange rate stability.
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