A friend working for a global cement producer asked me the other day - how important is the monetary policy announced by the central bank in Bangladesh? Knowing him, he must have asked this question having seen the headlines regarding Bangladesh Banks’ half yearly monetary policy.
In a country like ours, where decision makers are often influenced by political priorities and economists don’t have much visibility through the markets, fiscal measures still remain important for growth. Inflation here is mostly an outcome of low accountability among the business community – a situation made worse by an increasing number of people who can afford to buy things at a higher rate while keeping their mouth shut.
Monetary policy, for us, may not be as important as other developing economies. Yet, we need this, to gradually follow a disciplined path with regard to overall money management.
Very much like what we did with the Poverty Reduction Strategy Paper (PRSP), monetary policy statement also helps us organise our thought process with regard to money supply management, credit growth and to some extent also influence development strategies.
Bangladesh Bank started with the release of monetary policy statements from early 2006. Bangladesh Bank’s research division, which was almost looking redundant, found renewed energy to look at the core job of the central bank. Soon, with the help from the international monetary fund, we got to see the more focused ‘policy analysis unit’. Subsequently, the position ‘chief economist’ also came back to Bangladesh Bank.
Now, with a public relation focused governor, much hue and cry is being raised around monetary policy statements, which is not bad. The country that can hardly be proud of having many accredited macro economists and more importantly economic journalists is now making its ‘monetary management’ process known to many individuals and charting a more respectable way of financial management. Sadly, deviating from monetary policy, people responsible seem to be gradually losing interest or shifting it to other areas.
The recently announced monetary policy seemed to be a defocused, not well thought out and directionless one. I don’t think that it gives any impetus towards - 1) private sector led growth, 2) increasing surplus liquidity in the banking sector, which now stands at almost Tk700bn and more importantly 3) bringing back life into the investment space. The regulators still seem to be too concerned with inflation. While average inflation has cooled down and international market prices seem manageable, investment, especially domestic investment, looks quite dull.
If I believe my friend in regard to the irrelevance of monetary policies in a country like Bangladesh, I have reasons to relax. However, if I believe some of the early authors on monetary policy statements of the Bangladesh Bank, I truly believe, if we err, let us err with growth.
The history of economic development teaches us - a reasonable inflation may also help investment, employment and poverty reduction. Unless the decision makers ‘goof up’ badly on other fronts, we don’t need to panic with 7% inflation, give or take. Rather they should by all means drive investment. The policies will be helped by a large `shadow’ economy, savings surplus and poverty reduction strategies that are able to create synergy in the rural economy. So, repurchase agreement (Repo) and reverse Repo rates could have been lowered as a signal for the market to reduce the loan interest rates further.
Bangladesh Bank and its’ monetary policy seemed too one eyed towards the capital market. Early economics studies taught us how interest rate and liquidity is important to the capital market. The Federal Reserve Bank always championed this. A retail investor driven market, not backed by proper research, may not be adequately responsive to monetary policy. Lower interest rates and timely liquidity supply should still be helpful towards a better run bourse.
Economic management in Bangladesh is quite complex and cumbersome. We should thank our seniors who are trying to take things forward amidst various tensions. However, it does not mean that we should not learn from countries in similar economic conditions – possibly our neighbours. It does not also mean that we will forget our macroeconomic concerns in regard to interest rate management or tackling high inflation. Economic management in a changing world is challenging, but we should also garner enough strength to face the reality.
