Another policy rate hike this week: BB governor

The central bank will increase the policy rate twice within the next month in order to tame high inflation in the country, Bangladesh Bank Governor Ahsan H Mansur has said.

"A contractionary monetary policy will be followed as long as the inflation does not come under control. The policy rate will be hiked once next week and again next month," he told journalists during a briefing on Monday.

"I am optimistic that inflation will stabilise by March or April," he said. "While we cannot predict the exact level, we will tighten policies to reduce inflation. Our exchange rate remains stable, and remittances are increasing, which should help keep inflation in check."

Earlier on 25 August, the central bank increased the policy rate by 50 basis points to 9% in an effort to combat high inflation, marking the third time that the key interest rate has been raised this year.

Mansur had previously announced that the policy, or repo rate, would first rise to 9% and then potentially to 10% in phases.

The governor also said they have plans to merge smaller Islamic banks. "Reducing the number of smaller banks would be beneficial. Although no formal decision has been made yet regarding consolidation, we will explore the possibility of merging these banks." 

He said many previous bank owners lost their ownership due to irregularities, making it easier for the government to consolidate their stakes. However, he added that actions will be taken based on the realities of the situation, assuring that depositors' funds will be returned even if banks are merged.

The governor further said a task force has been established to reform the banking sector, focusing on three main areas: identifying distressed assets, locating these assets, and working to recover them. The task force will initially work with three banks, followed by another six.

A total of 14 officials from the Bangladesh Bank have been assigned to this task force, divided into three groups, he mentioned. The larger Islamic banks will have six officials overseeing the process, along with external auditing firms and international auditors. Development partners will provide the necessary funding.

"We will first assess the amount of money withdrawn from the banks, both in name and in the shadows. If any funds have been transferred abroad, we will work on bringing them back in compliance with international laws," he explained.

The boards of 11 banks have already been dissolved, and the impact of remittances is increasing. If these banks receive a boost in remittances, it will help improve their liquidity, he hoped.

Mansur said that some customers are transferring funds from weaker banks to stronger ones, creating liquidity issues for those losing deposits. "To address this, the central bank will provide funds from more liquid banks to those in need, ensuring that if weaker banks fail to repay, Bangladesh Bank will cover the amounts."

He also noted that the target for bank loans in the budget might be reduced by Tk50,000 crore, potentially boosting private investment. "If we can bring inflation down to 4%-5%, we will have the opportunity to lower interest rates."