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Bank & Finance - Corporate - Management - October 7, 2023

Reserves falling due to lack of market based dollar rate

Loan interest rate increased again

Mahfuz Emran: The International Monetary Fund (IMF) has expressed extreme displeasure over the non-fulfillment of market-based dollar rate conditions. The agency sees it as unrealistic to fix different rates especially for remittances, exports and importers.
Even the rate at which Bangladesh Bank sells dollars from reserves to commercial banks is not market-based, according to IMF. And the donor organization thinks that the reserve is decreasing at an alarming rate because the dollar is not rated based on the market. In addition, the IMF delegation asked the officials of Bangladesh Bank to find out the validity of the dollar price set by the Bangladesh Foreign Exchange Dealers Association (BAFEDA). But the IMF has not expressed satisfaction with any response, said sources.
These issues came up in a closed-door meeting between the central bank and the IMF on Thursday with Bangladesh Bank on the dollar, liquidity crisis and international trade deficit. The concerned Deputy Governor, Executive Director and Directors of Bangladesh Bank were present in the meeting. Rahul Anand led the IMF delegation.
According to another source, the liquidity crisis and international trade deficit are having a negative impact on the country’s bank management. Which is acting as a direct effect to reduce reserves. IMF wants to know about these issues as well.
Meanwhile, as per the promise made with the IMF, Bangladesh Bank once again increased the loan interest rate. It is the decision to increase the interest rate of the loan at the interval of one day. Such a decision is to deal with uncontrolled inflation. The six-month moving average rate or smart rate has been raised to 3.5 percent. Besides, Bangladesh Bank has ordered to add a maximum margin of 2.5 percent instead of the maximum 2 percent with Smart in determining the interest rate of pre-shipment export loans.
Bangladesh Bank also issued a notification in this regard from the Banking Regulations and Policy Department on Thursday.
It is said, ‘In the context of the current global economic situation, the economy of Bangladesh is having an adverse effect on inflation. At the same time, with a view to gradually reduce inflation, interest rates should be fixed by adding a maximum margin of 3.5 per cent instead of the maximum of 3 per cent in fixing the loan interest. Besides, in determining the interest rate of pre-shipment export loan, the interest rate should be determined by adding a maximum margin of 2.5 percent instead of the maximum of 2 percent with SMART. However, the maximum margin for agricultural and rural loans will remain unchanged at 2 percent.
Just a day ago (Wednesday) the central bank has decided to increase the policy interest or repo rate by 75 percentage points. Now the policy interest rate is 6.5 percent. As a result, the new policy interest rate or repo rate will be 7.25 percent. This decision was taken in the high-level meeting of the central bank. As a result, the interest rate of the money that the banks borrow from the central bank will increase. Besides, the interest rate of bank deposits and bank loans will also increase. That is, Bangladesh Bank decided to walk the path of more contractionary money supply.
For so long Bangladesh Bank has been mainly responsible for the increase in the value of the dollar for the increase in inflation. Now trying to reduce inflation by raising interest rates. When interest rates rise, people are generally encouraged to keep deposits in banks. Headline inflation in the country eased slightly in September. Headline inflation eased to 9.63 percent this month from 9.92 percent in August. However, food inflation was still above 12 percent in September irrespective of rural and urban areas. Food inflation rose to 12.54 percent in August.
Bangladesh Bureau of Statistics (BBS) has released the updated inflation data. It shows this picture of inflation in September. According to the latest data, rural headline inflation eased marginally to 9.75 percent in September from 9.98 percent in August. And the overall price inflation in the city was 9.24 percent in September, which was 9.63 percent in August.
IMF satisfied with the work of CPTU: IMF has expressed satisfaction with the work of the Central Procurement Technical Unit (CPTU). According to a source in charge of CPTU, Suphachal Suphachalasai, Senior Economist at IMF’s Climate Policy Fiscal Affairs Development, came to CPTU.
In the meeting, he wants to know what is the current status of sustainable government procurement policies. Besides, whether the views of stakeholders (beneficiaries) have been taken in making this policy. Is it inclusive? Want to know the details related to this. In response to this, details have been presented by the CPTU. It has also been informed that the opinions of all parties have been taken in making this policy.
Opinions have been published on the website. Workshops are also organized at the national level. That is, all the processes that have to go through to make a policy inclusive have been done. Currently the proposal of the policy is in the cabinet section.
If asked about this, IMED secretary Abul Kashem said Mohiuddin told Daily Industry that the Sustainable Public Procurement Policy was supposed to be approved by the Cabinet on October 9. But that seems not possible. Maybe next week. The IMF representative expressed satisfaction with the CPTU’s activities. Because we have done all the procedures required by the policy. Moreover, the IMF is pleased that it was done so quickly.

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