Interest rate caps to continue

Bangladesh Bank (BB) governor Abdur Rouf Talukder has hinted at the continuation of the interest-rate caps on term and working-capital loans, at least, for the next six months.

"This is not the time to change the rate caps. We might review it later", Mr Talukder told the Monetary Policy Consultation Meeting held at a local hotel on Saturday evening.

The central bank governor issued the hint when senior economists, bankers and business leaders, who were present at the meeting, expressed opposing views on the interest caps. Economists and bankers wanted the rate caps to go while business leaders suggested its continuation for some more time.

The BB governor in his summing-up speech dismissed the allegation of a section of businesses facing problems with opening letters of credit and said the central bank was in no way controlling LC opening.

“What we are concerned about is over-invoicing and under-invoicing. We won't tolerate such evil practices,” he said.

The BB governor said there is no restriction on the opening of LCs for capital-machinery imports either.

On the alleged 'helplessness' of the central bank to deal with large and influential bank loan defaulters, Mr Talukder said efforts are on to bring about a change in the non-performing loan situation. "We have already asked some banks to stop lending to this class of borrowers", he said.

He also referred to recent measures taken by the BB to stop the appointment of directors to the NBFIs' boards bypassing it.

The BB governor said the half-yearly monetary policy statement scheduled to be announced on the 15th of this month would be as usual in content. But, he said, the MPS to be announced immediately after the next general election will be 'something different'.

He said the central bank has been extending all-out support to the government to control inflation.

"There is quite effective coordination between the government and the central bank. This is evident from the recent changes made in inflation and growth projections for the current fiscal year. The BB insisted on the changes in the light of the economic outlook both at home and abroad", he added.

At the very onset of the discussion, Dr Md. Habibur Rahman, the chief economist of BB, briefed the participants about the recent macroeconomic developments and challenges.

Those who took part in the discussion included Dr Zaidi Sattar, Chairman of Policy Research Institute (PRI), Dr Mustafa K. Mujeri, executive director at Institute for Inclusive Finance and Development (InM), Selim R F Hussain, managing director and CEO of BRAC Bank Ltd, Md. Nasiruzzaman, chairman of Bangladesh Krishi Bank (BKB), Dr. Sayema Haque Bidisha, professor of economics, Dhaka University, Dr. Manzur Hossain, research director at the Bangladesh Institute of Development Studies, Mr Saiful Islam, president of Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka, Mr Md. Sameer Sattar, president of Dhaka Chamber of Commerce and Industry (DCCI), Mr Naser Ezaz Bijoy, president of Foreign Investors' Chamber and Commerce and Industry (FICCI) and Mr Faruque Hassan, president of Bangladesh Garments Manufacturers and Exporters Association (BGMEA).

Taking part in the discussion, Dr Zaidi Sattar appreciated the way the country has been addressing the challenges emanating from the Covid-19 pandemic and the Russia-Ukraine war.

He said external sector imbalances coming from import shock and sizeable depreciation of the Taka have started abetting and the current account deficit is expected to decline further in the next six months.

Dr Sattar said the current inflationary pressure is cost-push in nature and monetary measures would not be enough to control it. He felt that the National Board of Revenue should bring down tariffs on some selected commodities to maintain price stability during the upcoming holy Ramadan.

He also sounded optimistic about Bangladesh attracting a sizeable part of China's share in the global apparel market in the next 5 to 10 years.

Dr Mustafa K. Mujeri said the central bank should think about how extensively it can use the policy rates tool to contain inflation. He felt that the year 2023 will be a challenging one, as far as managing the country's economy is concerned.

Mr Selim R F Hussain said deposit growth in banks has notably slowed down and it needs to be increased through policy measures. He maintained borrowers are being 'extremely' benefited at the cost of depositors.

He felt that the time is ripe to bring an end to the forbearance shown to bank loan defaulters, particularly the biggies. "We need to be very strict. Otherwise, the high ratio of non-performing loans (NPLs) would never come down.

Dr Syema Haque Bidisha suggested the introduction of the market-based exchange rate and withdrawal of interest rate caps on deposits and lending.

Dr Manzur Hossain suggested reducing the policy rates to spur economic growth and introducing a unified yet managed exchange rate. He also made a plea to determine the core inflation rate and announce the monetary policy statement quarterly.

Mr Saiful Islam claimed that businesses have paid back against the benefits they have accrued from lending rate cuts. He wanted the facility to continue. He said the MPS needs to be aligned with the government's fiscal policy.

Mr Sameer Sattar emphasized one exchange rate and recovery of classified loans for the greater interest of the economy.

Mr Naser Ezaz Bijoy felt the necessity of conducting a study on the impact of the current interest rates on the purchasing power of the people.

He reiterated the call to look into the ease of doing business, which, according to him, is very important as far as attracting investment is concerned.

Mr Faruque Hassan did not sound that upbeat about any notable breakthrough in apparel exports in 2023. He said the Bangladesh RMG had done better in 2022, primarily because of the increase in unit price owing to a hike in freight and prices of raw materials.

He also wanted the interest rate caps to continue until July next.

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