The Bangladesh Bank governor Ahsan H Mansur said money will be made costlier again to tame inflation by increasing the policy rate at central bank twice and the interest rate once in October.
He made the disclosure at a press briefing on Monday held at the central bank. In the last week of August, the central bank hiked the policy rate by 50 basis points to 9 percent to rein in inflation, which hovered above the 9 percent since March 2023.
Despite the tightening, he said inflation soared to above 10 percent in July and August. "There is no doubt that the monetary policy is already quite tight; yet, we will increase the policy rate by this week and will do it again next month," he said.
Besides, the bank rate will also increase soon, he said at the media briefing which was preceded by a meeting of the banking taskforce for the sectoral reforms.
He said his priority is now macroeconomic stabilization and for that he set up three tasks: one on stabilizing balance of payments, another on stabilizing exchange rate, and the third one on bring the inflation rate down. "So, I will tune the policy by increasing interest rate," Mansur said.
He said the government's bank borrowing target has been reduced to Tk 80,000-85,000 crore from Tk 137,500 crore to reduce government's loans from the banking sector.
"If this happens, I am hopeful that it will support macroeconomic stabilisation. Through this, both the monetary policy as well as fiscal policy will be tightened," the BB governor said.
He said the GDP growth would not reach the expected levels and stay just above 5 percent. He further said cash-flow at crisis-hit banks is improving
It was positive in the last two days when deposits were higher than withdrawals. Islami Bank Bangladesh had a positive cash-flow of around Tk 620 crore on Sunday, which was Tk 320 crore the day before, he said.
"This is a very encouraging sign. We do not need to pump liquidity into the bank if the cash-flow is positive," he added.
About merger of crisis-hit banks, the governor said it would be a "good decision" to merge small banks, but not right now. "We don't want to do it at this stage," he said.
About the liquidity support to crisis-hit banks, Mansur said they were simply making sure that healthy banks would provide liquidity support to troubled ones.
Mansur said everything must be solved gradually, adding if the deposit growth is sustained; it would help recovery of other banks.
On banking reforms, he said the central bank has formed three taskforces: one for banking sector reforms, another for strengthening the banks and the third for evaluating assets of banks.
He said the current account deficit of nine banks now exceeds Tk 18,000 crore. Of them, five have obtained a central bank guarantee to avail liquidity support from the inter-bank money market. Their boards were also restructured in August to strengthen good governance.
