The country's total broad money supply (M2) in the banking sector is up 10.48% year on year (YOY) at the end of June, which also helped accelerate net domestic assets (NDA).
On the other hand, the net foreign asset (NFA) of the country dropped as a result of Bangladesh Bank's dollar selling policy.
Broad money refers to the total amount of money outside banks, including demand deposits, as well as time deposits accepted by other depository corporations.
Data analysis revealed that total broad money supply (M2) in the banking sector showed an annual increase of 8.77% in February 2023, 9.13% in March and 9.46% at the end of May.
Economists and bankers told Dhaka Tribune that reserve money, which is also called high-powered money, has been expanding, leading to the surge in broad money.
Data analysis also shows that there was an increase in NDA following sale of dollars to banks.
But the NFA of Bangladesh has dropped, as it kept selling dollars to the market.
Economists opine that the government's borrowing through treasury bills and bonds contributed significantly to the growth of broad money.
Broad money is simply money in circulation, and this has risen dramatically in recent years, Masrur Reaz, head of the Policy Exchange of Bangladesh, explained.
Following weak revenue growth, the government is borrowing money from both the banking system and the central bank.
He highlighted that the central bank is paying money to the government from its own coffer, which is equal to money printing.
He also stated that sales of savings certificates had declined as a result of the government tightening some restrictions for purchasing risk-free instruments.
NFA will increase once the foreign exchange reserve grows, and the balance of payment difficulties will be relieved, Reaz also pointed out.
Broad money will also accelerate as long as the reserve money expands.
Reserve money also rose by 10.49% at the end of June 2023 over the same period a year earlier.
Regarding the broad money growth, Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), Dhaka Tribune earlier that broad money growth is primarily coming from net domestic assets.”
According to him, this type of expansion could have an impact on the balance of payments and destabilize the foreign exchange market.
However, the inflationary pressure on the economy remained high, reaching 9.94% in May and 9.74% in June.
M2 growth has been falling over the past year as part of reining in the high inflation persisting since August last, when it stood at 9.52%.
