In the monetary policy statement (MPS) for the first half of the ongoing financial year (FY 2024-25) that the central bank, the Bangladesh Bank (BB), made public on July 18 (Thursday), it did not go for any further raise in the key policy rate, which is currently at 8.5 per cent. Notably, policy or repo rate is the one at which the central bank lends money to the commercial banks. Local experts and the global lender, IMF, however, suggested increasing the policy rate by 50 basis points for further tightening of the money supply to curb inflation. In fact, containing high inflation, which, at an annual average of 9.73 per cent during FY 2023-24, was the highest since FY2011-12, has been the main focus of the contractionary monetary policy now in force with the expectation that it (inflation) would come down to the targeted 7.5 per cent, according to the Bangladesh Bureau of Statistics (BBS). But despite the policy rate hike and other measures taken in the second half of FY 24 to rein in the galloping inflation, the Consumer Price Index (CPI), which is an indicator of inflation, has remained stubbornly over 9 per cent for the second consecutive year.

So, question arises as to how far the contractionary monetary policy so adopted has worked to combat inflation. Perhaps, the central bank is somewhat wary about using the same monetary tool, that is, raising the policy rate, again and again to tame the high consumer prices. In this connection, the BB sources are learnt to have hiked policy rate nine times since May 2022.

Understandably, the BB took a rather conservative approach by not raising the policy rate another notch from the current 8.5 per cent. Also, there is the concern, as expressed by the central bank, that private sector investment, which has already reduced due to costlier bank credit, might further shrink thereby affecting GDP growth, if it (policy rate) is raised for another round. Needless to say, these two objectives -- tightening money supply and maintaining pace of economic growth -- are at cross purposes. Moreover, the BB has not taken any bold step towards a more flexible exchange rate regime than the existing hybrid system, the so-called crawling peg (which is a mix of both the fixed and floating exchange rate policies) that would allow Bangladesh Taka (BDT) depreciate or appreciate against US dollar (USD) within a certain range around the midpoint exchange rate at Tk.117 for a USD.

Notably, the new MPS, recognizes the different macro-economic challenges with the potential to impact the economy's stability and growth in the near-term. Obviously, these challenges emerging both from the domestic and international factors require the policymakers to be rather cautious about choosing the options. It is well understood that such choice is a tricky issue. That notwithstanding, the main issue that remains still unanswered is the outcome of such exercise. One would like to ask at this point, if the main features of macro-economic stability including inflation rate, which is very close to double digits, could be brought down to a tolerable range, let alone the targeted level. Or could the trend of declining forex reserve be arrested? Is there any symptom of improvement in the notoriously vulnerable financial sector? In each case, if anything, the answer cannot be said to be in the positive. Admittedly, the measures to tighten monetary supply and reforming the exchange rate regime have not produced the expected results. So, to be effective, the monetary policy statements (MPS) being released by the central bank every six months need to be bold, time-bound and result-oriented. To that end, the central bank authority should revisit the measures already adopted and remove the dichotomies, if any, that might have come in the way of achieving expected results.