The Bangladesh Bank is prioritising curbing commodity prices, among other things, in formulating monetary policy for fiscal year 2022-23, according to its latest report on the macro-economic situation of Bangladesh.
Other priorities are stabilising the foreign exchange markets, while keeping foreign currency reserves and public debt at a comfortable level.
The central bank's target is to keep inflation at 5.6% in line with the proposed budget, while GDP growth is expected to be 7.5%.
Bangladesh Bank Executive Director Sirajul Islam told The Business Standard (TBS) that volatile global markets of essential commodities and the ongoing Russia-Ukraine war have a negative impact on the local market.
"The central bank will formulate monetary policy considering these issues and take measures to keep price hikes in check," he added.
Like in the past couple of years, Bangladesh Bank Governor Fazle Kabir is scheduled to unveil the new monetary policy on the last day of the current fiscal year, 30 June (Thursday).
The monetary policy for FY2021-22 emphasised implementation of the stimulus package the government announced to facilitate recovery from the adverse economic impact of Covid.
Economists suggest the Bangladesh Bank reduce credit flow and lift the cap on interest rates to effectively curb price hikes.
"Obviously, the Bangladesh Bank should work on stabilising exchange rates and inflation. The monetary policy should be tightened further," Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh told the Business Standard.
Private sector credit might see a decrease in the upcoming fiscal, which is not a matter of concern for now, he said, adding that interest rate policy should be determined first.
"The government should backtrack on fixed interest rates [6% on deposit and 9% on borrowing]. The central bank knows well whether they will do it or not, but I think it should do so now."
In the last couple of months, the flow of credit in the private sector was on the rise – mostly backed by greater import financing – but it was below the target set for FY22, while inflation rates exceeded the target and broke long-previous records.
The year-on-year growth of money flow to the private sector was 12.94% in May this year (highest in 41 months), 12.48% in April and 11.29% in March against a target of 14.8% for the fiscal (FY22), according to the Bangladesh Bank.
On the other hand, inflation soared to 7.42% year-on-year in May this year (highest in eight years), 6.29% in April and 6.22% in March, against only 5.4% set for the fiscal year, as prices of food items surged drastically.
Central bank officials said the new monetary policy for the next fiscal year might tighten money flow by cutting down the credit growth ceiling to curb inflation keeping in line with many other central banks across the world.