There is no alternative to market-based exchange and interest rates to control the ongoing inflation. This move may increase the inflationary pressure further but it will prevent the depletion of forex reserves and ensure confidence in the economy, experts have said.
This confidence will boost remittance and export earnings and as a result, it will be possible to handle the additional pressure of inflation, they said.
Their observations came on Tuesday at a discussion, titled “The Bangladesh Economy: Emerging Structural Issues and Correcting Policy Measures”, organised by Unnayan Shamannay, a local non-government research firm, in Dhaka.
Atiur Rahman, former governor of Bangladesh Bank (BB) and chairman of the firm, presided over the event. The keynote speaker was Birupaksha Paul, former chief economist of BB and a professor of economics at the State University of New York.
Birupaksha said, “Market-based exchange rate should be implemented gradually. The central bank should allow banks to do business as they like. Sri Lanka has done the same. We have to learn from there.”
The economist also said that the government should increase fiscal capacity through political decisions. For example, he said, the collection of due taxes from the rich should be ensured.
Professor Mizanur Rahman, commissioner of the Bangladesh Securities and Exchange Commission (BSEC), expressed his opinion in favour of market-based exchange and interest rates.
He said that keeping the interest rate cap at 9 per cent gave domestic demand a boost. “But our economy was not able to meet that demand. As a result, we are now in trouble.”
However, the experts said that even though BB has removed the interest rate cap, and imposed the new interest calculation system named Six months Moving Average Rate of Treasury bill (SMART), it is also not logical.
“Keeping interest rates in check will not work. It must be left entirely to the market,” Birupaksha said.
Asked whether increasing the exchange and interest rates will increase the inflationary pressure, they told reporters that there will be some temporary problems and it will have to be accepted.
“If the market-based rates can be fixed, the depletion of reserves will reduce. On the other hand, exports will increase. This will boost confidence in the economy and it will play a role in handling the pressure,” said Mizanur.
Mashiur Rahman, the economic affairs adviser to the prime minister, was present as the chief guest at the event. He emphasised reducing economic demands to tame inflation.
Referring to the ongoing inflation as a result of the country’s structural problems, Atiur expressed fear that it may increase in the future.
He said that if more unrest spreads because of the Palestinian-Israeli war, the cost of imports may increase and inflationary pressure will rise further.
