The Key Challenge of Maintaining Stability: BB
Keeping import payments manageable while keeping foreign exchange markets stable will be a crucial challenge for the economy, in addition to keeping inflation at a tolerable level, the Bangladesh Bank said yesterday.
The Bangladesh central bank’s concern comes at a time when the foreign exchange market continues to remain volatile as export and remittance earnings have remained well below the full cost of imports.
For all the latest news, follow the Daily Star’s Google News channel.
As a result, the foreign exchange reserve, which was $46 billion a year ago, has been falling for two months. As of June 29, the foreign exchange reserve stood at 41.8 billion dollars.
Taka lost value again this week. The exchange rate of the local currency stood yesterday at 93.45 Tk for one dollar against 84.80 Tk a year ago.
The central bank said economic growth momentum is expected to continue, supported by ongoing growth-supportive fiscal and monetary policies, with growing internal and external demand, improvements in the Covid-19 situation and growing business confidence.
“Implementation of the government’s ongoing mega-projects, including the recent opening of the Padma Bridge, is expected to boost private investment and employment, bolstering the country’s gross domestic product (GDP),” the monetary policy said. for the 2022-23 financial year. .
Bangladesh Bank Governor Fazle Kabir announced the monetary policy yesterday.
Given the economic impact of the Padma Bridge, a real GDP growth target of 7.5% seems consistent with the BB’s model-based GDP growth forecast for FY23, he said. added.
“However, headwinds to this outlook for growth and inflation could emerge from a number of factors…” he said.
“…such as the unfavorable outcome of the Russian-Ukrainian war, the continued soaring global commodity and energy prices, and the sustained widening of current account deficits with the pressure for exchange rate depreciation “said the BB.
The central bank said Russia and Ukraine are key suppliers of several commodities, such as wheat, maize, sunflower oil, maize, fertilizers and rare earth minerals, including oil, gas and metals.
Disruptions in the supply of these products could push up their prices on world markets, he said.
“Given the escalation in global commodity prices, government subsidies on fuels and fertilizers will increase significantly, creating pressure on fiscal management,” the central bank said.
“The pass-through of soaring global commodity prices and exchange rate depreciation could harm domestic price stability through import channels,” he said.
The Bangladesh Bank, however, hopes that any direct negative impact of the war on Bangladesh would be limited because its trade with Russia and Ukraine is shallow.
“However, if the war persists and spreads to neighboring European countries, which happen to be Bangladesh’s main export destinations and sources of remittances, the effects of the war could be significant,” he said. he declares.
Bangladesh Bank said Bangladesh’s exports have surpassed pre-pandemic levels with the reopening of major export destinations like the European Union and the United States.
However, reduced growth forecasts and any possible economic recession in advanced economies, especially in Europe and the United States, are concerns for Bangladesh’s economy, he said.
This is because they are major export destinations for Bangladesh as well as important sources of remittances, he added.
The central bank said export growth is expected to be 13% in the next financial year, compared to an estimated 32% for the 2021-22 financial year.
In addition, climate- and environmental-related vulnerabilities, such as the recent flash floods in the north and northeast of the country, could generate headwinds on the country’s overall price stability and growth prospects. said the BB.
However, increased migrant worker outflows amid improving economic and labor conditions in employing countries are expected to help inward remittances increase by 15% in FY23, coming back from the recession. of the 2021-22 financial year which has just ended.