The pro-growth accommodative policy stance also aims to support employment-generating activities, and help create conditions that can enable businesses to normalise production and supply chains.
In the latest monetary policy published on the central bank’s website on Thursday, it said it would remain watchful about the commodity and asset prices and stay engaged in selecting the priority sectors and ensuring the required funds in the system through policy options.
The central bank has left key policy rates unchanged, with the benchmark overnight repo rate at 4.75 percent and the reverse repo rate at 4 percent.
Given the ongoing devastating waves of the COVID-19 pandemic, the basic challenges that the central bank may encounter in the coming months include the restoration of full normalcy in lives and livelihood.
It will also be challenging for the Bangladesh Bank to extend a required flow of funds to the intended production pursuits.
“Longer sustenance of the current coronavirus pandemic situation amid the continuation of global price hikes, and any unexpected crop loss in the coming seasons due to natural calamities might create some undue commodity price pressure down the road,” the central bank said.
Besides these, the presence of a huge amount of surplus liquidity in the economy attributed to the ongoing expansionary fiscal and monetary stances may also contribute to form some price pressures in the days ahead, the Bangladesh Bank warned.
In case of any unexpected price pressure or any sporadic asset price bubble due to ample excess liquidity in the banking system, the central bank will “not hesitate to take appropriate policy action if required, throughout the year ahead”.
Despite the shocks of COVID-19 and mobility restrictions and nationwide lockdowns, preliminary estimates suggest that the economy has attained around 6.1 percent real GDP growth in FY21, the central bank said.
Supported by “reasonably healthy” growth performances in agricultural and industrial sectors aided by the government and the Bangladesh Bank’s “unprecedented” policy measures, the estimate is “significantly” higher than last year’s estimated growth of 5.2 percent.
To back its unchanged stance, the Bangladesh Bank said CPI-based average inflation declined to 5.56 percent against the target of 5.4 percent for FY21 from 5.65 percent in FY20 despite supply chain disruptions amid global price hike.
The monetary policy stance and monetary programme outlined for FY21 were mostly “successful” in terms of injecting sufficient liquidity in the system accompanied by a lower market interest rate regime, containing inflation, and ensuring stability in both the local and foreign currency markets.
Extraordinary “expansionary and accommodative” monetary policy is likely to continue both in advanced and emerging market economies to secure sustained recovery while most central banks are closely monitoring domestic as well as global price developments along with financial stability risks, the Bangladesh Bank said.
The overall balance of payments in FY21 witnessed a “healthy” surplus, supported by a “significant” inflow in financial accounts along with a relatively thinner current account deficit due to strong inward remittances and export earnings.
Relying on the BoP surplus, BB's foreign exchange reserves have reached a historical high of $46.4 billion at the end of June 2021.
Different countries of the world have faced multitudes of financial crimes such as corruption in procurement, exploitation of stimulus measures by fraudulent activities and corruption in aid delivery in COVID-19 situation, the Bangladesh Bank said.
“Thus to address these sort of challenges, banks and other financial institutions need to take appropriate measures to monitor transactions and remain vigilant.”