In the post-pandemic, Bangladesh recovered reasonably quickly and was seeing encouraging signs that the economy was well poised to return to the pre-Covid growth path.

However, a combination of global inflationary pressure and supply disruption owing to the Russia-Ukraine War, a rising US dollar, increasing international inflation rates, and emergence of recessionary fears in advanced economies has created a very hostile global economic environment.

As a result, Bangladesh has been facing some serious macroeconomic challenges reflected in high inflation, balance of payments' pressure causing the loss of reserves and foreign currency shortage, and fiscal pressures indicated by a severe revenue constraint and rising fiscal deficits.

When it comes to influencing macroeconomic outcomes, governments have typically relied on one of two primary courses of action: monetary policy or fiscal policy. Central banks use monetary policy tools to keep economic growth in check and stimulate economies out of periods of distress.

While central banks can be effective, there could be negative long-term consequences that stem from the short-term fixes enacted in the present. If monetary policy is not coordinated with a fiscal policy enacted by governments, it can undermine efforts as well.

We, therefore, felt that addressing the current macroeconomic issues in Bangladesh requires the use of different policy instruments that best relate to each of these areas: monetary policy instruments to ease the inflationary pressure; exchange rate policy to ease the balance of payments pressure; and tax or expenditure policy measures to ease the budgetary pressure. Their combined use as a coordinated set of policy actions can help avoid the bluntness of any single instrument and reinforce the effectiveness of each of the policy reforms.

Our central bank is formulating the monetary policy for the second half of FY23 promising emphasis on liquidity supply to the manufacturing and agricultural sectors and reducing the gap in dollar rates for export proceeds and remittance.

Earlier, policymakers introduced a new financial instrument for the Shariah-compliant banks in the country to aid their liquidity management and strengthen their financial system. It was meant for supporting liquidity management and deepening the financial system overall.

However, the policy came in the wake of reports of some big cash-outs through shady lending. This raised questions on the credibility and effectiveness of the decision and even the independent decision-making ability of the central bank.

On the matter of the cap on interest rates, speculations persist regarding who is benefitting the most from this? Such a cap is supposed to help small businesses, small and medium entrepreneurs (SMEs), and the rural economy but, the beneficiaries are the already wealthy big business owners and those who are taking undeserved and unfair advantage of low-cost funds from commercial banks.

In broad terms, the goal of macroeconomic policy reform is to provide a stable economic environment that is conducive to fostering strong and sustainable economic growth, on which the creation of jobs, wealth and improved living standards depend. Authorities need to be very wary of falling into the trap of policy myopia where, to address the short-term issues, they lose sight of the longer-term solutions.

The writer is an economic analyst.