Bangladesh Bank
Banking sector reforms must be based on reality
This government-backed family has become a liability to the banking sector. Dr. Mansur also announced that the Bank Resolution Act is being formulated to address banking failures. Some state-owned banks are also struggling, and measures will be taken to prevent the Financial Institutions Division of the Ministry of Finance from interfering in banking operations. The Bangladesh Bank will be allowed to function independently. However, the Governor did not explicitly state what would happen to banks that cannot be saved or how they would be phased out. His remarks, however, indicate that major changes are on the horizon for the banking industry.
Curbing inflation is priority over high growth now
cently, Bangladesh Bank announced a new monetary policy. This was the second monetary policy for the current fiscal year (2024-25) and the first one formulated under the present interim government. For quite some time, economists had been discussing the proposed monetary policy. Given the ongoing trend of high inflation in the country for nearly three years, there was significant interest in what kind of monetary policy would be adopted
Contractionary monetary policy alone can’t solve inflation woes
The Bangladesh Bank announced the second monetary policy of the current fiscal year on February 10, 2025. This was the second monetary policy for the fiscal year 2024-25 and the first policy under the interim government. There was considerable anticipation regarding the announced policy, and many experts had expected it to be contractionary in nature. Indeed, the policy can be described as contractionary in terms of its characteristics, as it focuses more on controlling the existing high inflation rather than achieving high growth.
Adopt market-driven US dollar exchange rate
Following the advice of the International Monetary Fund (IMF), the Bangladesh Bank has taken the initiative to set the exchange rate of the US dollar based on market principles. However, the Bangladesh Bank is not yet fully leaving the determination of the exchange rate of the US dollar to the market. It is still retaining some control over the exchange rate. Through a notification issued by the Bangladesh Bank, the new system for determining the exchange rate of the US dollar is being implemented starting this January. This new method for setting the exchange rate of the US dollar can be described as a advanced step towards the currently prevalent 'crawling peg' system. Under the crawling peg system, a reference rate would be set for the exchange rates of the US dollar and other foreign currencies. Scheduled banks and authorized institutions engaged in foreign exchange transactions would then set the exchange rate by adding or subtracting one taka from the rate set by the Bangladesh Bank. For example, if the exchange rate for one US dollar is set at 117 taka, the market would follow that base rate with minor adjustments.
Why the White Paper failed to make an impact
The interim government has set up several reform committees. One such committee, formed to review the economy left behind by the ‘autocrat’, recently published a white paper. During a press conference, the committee provided an explanation of the data and findings in the white paper. From the statements of the committee’s head, Debapriya Bhattacharya, it becomes clear that during the previous government's tenure, "crony capitalism" led to the creation of "corrupt systems", involving politicians, military and civilian bureaucrats, and the judiciary. The white paper claims that in the last 15 years, $234 billion was illegally siphoned out of Bangladesh through 28 different methods of corruption. However, the white paper did not attempt to identify the corrupt individuals, as it states its job is not to catch the thieves but to describe the methods of theft. Thus, the white paper only attempted to investigate the process of theft. According to Debapriya Bhattacharya, identifying the individuals or institutions involved in corruption would require appealing to the Anti-Corruption Commission (ACC) or the Intelligence Unit of the central bank.
BB withdraws policy interest rate hike initiative
BB withdraws policy interest rate hike initiative
Can lending to weak banks restore customer confidence?
Can lending to weak banks restore customer confidence?
Bank bailouts through money printing could ignite inflation
Bank bailouts through money printing could ignite inflation
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