No measures have been taken in the new monetary policy to raise lending rates even though the central bank hiked its policy rate to a record 5.50%, which will in no way tame inflation, but rather affect banks' investments, said chartered accountants at a roundtable on Thursday.
Banks now have to borrow from each other at a higher weighted average rate in the call money market, they noted.
Md Shahadat Hossain, president of the Institute of Chartered Accountants of Bangladesh (ICAB), said there is no alternative to boosting production of import-substitute products alongside strengthening market monitoring to rein in commodity prices and control inflation.
It may not be possible for the central bank to go ahead alone, he noted, adding that it is important to take such steps in coordination with various government ministries.
Continuing support for ongoing economic recovery aimed at job creation has also been deemed essential to the monetary policy, Shahadat Hossain said while addressing a discussion on the monetary policy for FY23.
In the current situation, private sector entrepreneurs are worried about the dollar crisis. They also have concerns about export growth if the war in Ukraine continues. Therefore, the crisis has to be tackled through short- and medium-term measures, he pointed out.
He said the monetary policy, which stresses lowering private sector credit, will impede job creation and give a rise to unemployment.
Ferdaus Ara Begum, chief executive officer of BUILD Bangladesh, said the monetary policy has been formulated keeping in view economic growth and employment. In fact, the amount of tax levied on luxury goods is almost the same as before. As a result, imports of luxury goods do not seem to be prevented.
Dr Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), said the market should be allowed to fix interest rates on bank loans.
According to him, the rise in fuel prices can lead to higher inflationary pressures in the future. He added that controlling inflation is currently a big challenge for the economy.
State Minister for Planning Shamsul Alam said the success of the economy depends on monetary policy and fiscal policy. Bangladesh has ranked fifth in the world and first in South Asia in tackling the pandemic.
"We have been able to cope with many challenges. Now, the big challenge is to deal with inflation and unemployment," he also said.
"Our economy is changing rapidly. So monetary policy should be formulated in consultation with all stakeholders every six months."
The government has formulated a contractionary monetary policy to check devaluation of the taka against the dollar, he noted.
Bangladesh's market is not competitive, and the government had to intervene in fixing interest rates on bank loans to break the syndicate, the state minister said.
If banks are allowed to fix their own lending rates, capital expenditure will go up. As such, at present the government is not thinking of removing the interest rate cap, Shamsul Alam also said.