Leading economists believe that the new monetary policy adopted by the central bank will not be able to overcome the obstacles of taming inflation and boosting the flow of Dollars and Taka during the second half (H2) of the fiscal year.
If we take a broad view of H1 of FY23 (July-December), we can see that the growth of bank deposits has decreased to an alarming level as a result of the Dollar crisis and Taka devaluation.
Data analysis reveals that there is just Tk6,591 crore in cash available for lending to banks. Eight Islamic banks only have Tk646 crore of this total.
Bangladesh Bank has agreed to increase the amount of money available in the market for the second half of FY23 in order to address this credit crunch issue.
Speaking with the Dhaka Tribune over the past two days, economists have stated that while it may be possible to increase the growth of the private productive sector and the government's bank borrowing, doing so will also likely have a negative impact on the ongoing inflationary pressure and on the Dollar market.
Zahid Hussain, chief economist consultant at the World Bank, said that the efforts made in monetary policy to control inflation are insufficient in response to the Bangladesh Bank's new stance on monetary policy. Raising the repo rate is insufficient to curb inflation because the supply shock is the primary cause of the current inflation.
“Additionally, the inflation rate has increased due to the central bank's monetization of it for lending to the government. Even monetization and refinancing plans are no longer effective ways to curb inflation.
“Once more, raising the interest rate on consumer loans—while appropriate—is insufficient. The interest rate floor on deposits has been raised by monetary policy, and this could help deposit growth,” he continued.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh said that the economic crisis will not be solved with this type of monetary policy.
He said that the central bank should have tried to deal with the situation by lifting the loan interest rate cape completely.
The three primary issues facing the economy right now are inflation, the Dollar, and the money (Taka) crisis.
He added saying that the Dollar situation will worsen if the central bank attempts to use money printing to address the deposit or currency (Taka) crisis, as printing money today will cause an overstock of money and higher inflation, which will put an additional burden on the overall economy.