Tightfisted monetary management likely again

Tightfisted monetary management may continue for another six months as the central bank is set to unveil its next monetary policy today (Monday) with focus on taming inflation to tolerable levels, officials said.

All policy rates are likely to remain unchanged as the central bank aims to monitor inflation trends over the couple of months before taking its next course of action, they added.

"We'll re-fix policy rates considering inflationary pressure on the economy," a senior official of the Bangladesh Bank (BB) told the FE on Sunday.

He also notes that the central bank formulates its latest monetary policy by giving top priority to curbing the inflation pressure on the economy with exchange rate kept stable.

The central banker hopes the inflationary pressure on the economy will be brought down at a tolerable level within the next couple of months.

The BB's latest move comes against the backdrop of a declining inflation trend in the last consecutive two months, driven primarily by stable food prices due to an increased supply of winter vegetables in the local market.

Meanwhile, inflation as measured by consumer-price index came down to 9.94 per cent in the month of January 2025 from 10.89 per cent of the previous month on the point-to-point basis. It was 11.38 per cent in November 2024.

On the other hand, the 12-month average inflation remained unchanged at 10.34 per cent in January this calendar year from the previous level, according to the latest Bangladesh Bureau of Statistics (BBS) data. Bangladesh Bank Governor Dr Ahsan H. Mansur will announce his first monetary policy statement (MPS) for the January-June period of the current fiscal year (FY), 2024-25, at 3:00 pm at a press conference at the central bank headhunters in Dhaka.

Earlier in the day, a final draft of the MPS will be submitted at the BB board meeting, scheduled to be held at its headquarters at 11 am, for approval, according to the central bank officials.

It will be the first monetary-policy promulgation after the formation of an interim government led by Dr Muhammad Yunus on August 08, 2024 in Bangladesh, following the unseating of Prime Minister Sheikh Hasina on August 05, 2024 amid nationwide student-mass protests against the government.

However, the target of private-sector-credit growth is likely to remain unchanged at 9.80 per cent for the second half (H2) of the FY'25 despite falling trend in the credit growth to the private sector in recent months.

The growth in credit flow to private sector came down to 7.28 per cent in December 2024 on a year-on-year basis from 7.66 per cent a month before.

It was 2.52-percentage-point lower than the central bank target of 9.80 per cent for the first half (H1) of the current fiscal year. The central bank's officials expect that the private- sector-credit growth may increase in the coming months as import has already taken an upturn ahead of the holy Ramadan.

They also say the next MPS may focus on credit disbursement to productive sectors, especially agriculture, and the Cottage, Micro, Small, and Medium Enterprises (CMSME), for enhancing supply of essential goods and services.

Besides, the latest situation of the capital market along with foreign exchange and money markets will be included in the next MPS, they added.

Currently, the central bank is maintaining an interest rate targeting monetary policy instead of monetary aggregate-based policy earlier to expedite monetary-transmission mechanism in Bangladesh.

siddique.islam@gmail.com