Attempts to reduce inflation by raising interest rates

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People are in trouble due to the increase in the price of daily commodities. In such a situation, Bangladesh Bank has taken the initiative to further reduce the supply of money in the market to curb high inflation. The policy interest rate has been increased for this. In this, public and private banks have to pay more interest than before to borrow money from Bangladesh Bank. Besides, the private sector debt has also been reined in. Bangladesh Bank expects inflation to come down in these two steps.

In addition, the use of the ‘crawling peg’ method to determine the price of the dollar has been announced; So that the value of the dollar will fluctuate in line with the economy. The Central Bank has made these announcements in the announced monetary policy for the period of January-June.

However, it has not been specified how much the dollar exchange rate will be in the new system. Apart from this, the formation of ‘asset management company’ has also been announced as a private initiative to recover defaulted loans. And the ongoing crisis of five Islamic banks has been termed as ‘structural weakness’ by the banking sector regulatory body.

The government aims to achieve 6 and a half percent GDP growth and reduce inflation to 7 and a half percent by next June. However, the central bank says that the contractionary trend of monetary policy will continue until inflation falls to 6 percent. Habibur Rahman, the chief economist of Bangladesh Bank, announced the monetary policy at the conference room of Bangladesh Bank in Motijheel of the capital yesterday afternoon. After that Governor Abdur Rauf Talukder answered various questions of journalists. The government aims to achieve 6 and a half percent GDP growth and reduce inflation to 7 and a half percent by next June. However, the central bank says the contractionary monetary policy will continue until inflation falls to 6 percent.

The interest rate of loans in the bank sector has increased from 9 percent to 12 percent, yet the governor said about the reason why inflation did not decrease, it takes time for the impact of the initiatives taken in the monetary policy to be felt in the economy. Inflation is not increasing now, it has decreased slightly in the last two months. Our main objective is to bring inflation under control. For this, there is no problem even if the GDP growth decreases by 1 percent. There are economic as well as non-economic factors behind the increase in inflation. The new finance minister has called a meeting on this next Sunday.

Regarding the dollar-crisis, the governor said, uncertainty about the election has been removed. Now foreign investment, foreign loan project finance and trade finance loans will increase. Apart from this, the pressure of foreign debt repayment will also decrease. It will reduce the pressure on the dollar. However, the governor did not say anything clearly about when the dollar crisis will end.

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