Policy rate to remain unchanged at 10pc

The cost of bank credit is not being relaxed now as the monetary policy committee (MPC) members have decided not to make any change in the policy rate until the inflation-combating target is achieved.

The decision came in the eighth MPC meeting chaired by Bangladesh Bank (BB) Governor Dr Ahsan H Mansur and held virtually on Thursday.

All the committee members - BB Deputy Governor Dr Md Habibur Rahman, economist Dr Sadiq Ahmed, Chairman of the Department of Economics at the University of Dhaka Professor Masuda Yasmeen, Executive Director (Grade-1) of the Bangladesh Bank's Monetary Policy Department Dr Md Ezazul Islam, Bangladesh Institute of Development Studies Director General Dr AK Enamul Haque, and Director of the BB Monetary Policy Department and MPC Member Secretary Mahmud Salahuddin Naser - joined the meeting.

Sources said the committee reviewed the current economic situation, along with the decisions made in the seventh MPC meeting and their implementation status.

It assessed the current macroeconomic challenges and outlook from both domestic and global perspectives.

Particular attention was given to analysing inflation trends and forecasts, economic activities and growth potential, recent developments in the financial markets, and the external sector's performance, according to sources.

The MPC also reviewed liquidity support measures for banks, particularly addressing cash flow shortages in some conventional and Islamic banks, as well as interest rate trends, foreign exchange reserves, and movements of the current exchange rate.

Seeking anonymity, a MPC member said after reviewing these factors, the committee believes the monetary and exchange rate management policies were on track to support the stabilisation agenda.

"The majority of the committee members have decided to keep the policy rate or REPO rate unchanged at 10.0 per cent. Consequently, the standing deposit facility (SDF) and standing liquidity facility (SLF) will remain at 8.5 per cent and 11.5 per cent, respectively," he said.

Responding to a question, he also said the contractionary measures would be continued until the desired level of inflation (8.0 per cent by the end of June) is achieved.

"Once the inflation is brought down to the targeted level, we will meet again to adjust the policy rate. Not now because we find the existing policy helps reduce the inflationary burden," according to the MPC member.

It means the cost of bank credit will not come down at least in the next couple of months as the interest rate in banks is aligned with the policy rate. If the policy rate drops, the lending rate falls. If it rises, the lending rate also goes up.

The banking regulator has continued such tightened monetary stance since October last year, when the policy rate was increased to 10 per cent. Since then, the businesspeople have been requesting the central bank to take measures to limit the growing cost of formal credit, taking the ongoing economic slowdown into consideration.

The inflation rate on a point-to-point basis in April decreased to 9.17 per cent, the Bangladesh Bureau of Statistics (BBS) data showed. In the previous month of March, the rate was recorded at 9.35 per cent.

Talking to The Financial Express, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) President Mohammad Hatem said the lending rate is one the factors that badly impacted business.

"It must be reduced for the sake of ease of doing business," he said.

Mr Hatem, also the managing director of MB Knit Fashion Ltd, said the central bank keeps the policy rate at 10 per cent but the commercial banks are charging the lending rate as high as 16 per cent.

"We cannot absorb the burden because it is too heavy for business amid the current context of the economic slowdown," he added.

jubairfe1980@gmail.com