Maintaining stability key challenge: BB

Keeping import payments manageable while maintaining stability in the foreign exchange markets will be a critical challenge for the economy, apart from keeping inflation at a tolerable level, said Bangladesh Bank yesterday.

The concern of the central bank of Bangladesh comes at a time when the forex market continues to remain volatile as export and remittance earnings have jointly remained far below the total import cost.

As a result, the foreign exchange reserve, which was $46 billion a year ago, has been falling for the past couple of months. As of June 29, the forex reserve stood at $41.8 billion.

Taka lost value further this week. The exchange rate of the local currency stood at Tk 93.45 against each dollar yesterday in contrast to Tk 84.80 a year ago.

The central bank said economic growth momentum was expected to continue, hinging on ongoing growth supportive fiscal and monetary policies, with growing internal and external demand, improvements in the Covid-19 situation, and rising business confidence.

"The implementation of the government's ongoing mega projects, including the recent opening of the Padma Bridge, is expected to boost private investment and employment, beefing up the country's Gross Domestic Product (GDP)," said the monetary policy for fiscal year 2022-23.

Bangladesh Bank Governor Fazle Kabir announced the monetary policy yesterday.

Considering the economic impact of the Padma Bridge, a 7.5 per cent real GDP growth target seems consistent with the BB's model-based GDP growth forecasts for FY23, it added.

"However, headwinds to this growth and inflation outlook could emerge from a number of factors…," it said.

"…such as the unfavourable outcomes of the Russia-Ukraine war, the continuation of soaring global commodity and energy prices, and sustained widening current account deficits with the depreciation pressure on exchange rate," said the BB.

The central bank said Russia and Ukraine were critical suppliers of several commodities, such as wheat, maize, sunflower oil, corn, fertilisers, and rare earth minerals, including oil, gas and metals.

Disruptions to supplies of these commodities may escalate their prices in the global markets, it said.

"Given the escalated global commodity prices, the government's fuel and fertiliser subsidies will increase substantially, creating pressure on fiscal management," said the central bank.

"The pass-through of soaring global commodity prices and the exchange rate depreciation could impair domestic price stability through import channels," it said.

Bangladesh Bank, however, is hopeful that a direct adverse impact of the war on Bangladesh would be limited as its trade with Russia and Ukraine is shallow.

"However, if the war lingers and propagates in neighbouring European countries, which happen to be the major destinations of Bangladesh's exports and sources of remittance, the effects of the war could be non-trivial," it said.

Bangladesh Bank said exports from Bangladesh surpassed the pre-pandemic levels with the reopening of major export destinations like the European Union and the US.

However, the slashed growth forecasts and any possible economic recession in the advanced economies, particularly in Europe and the US, are concerns for the Bangladesh economy, it said.

This is due to the fact that they are the top destinations for Bangladesh's exports as well as important sources of remittances, it added.

The central bank said export growth was expected to be 13 per cent next fiscal year, down from the estimated 32 per cent in fiscal year 2021-22.

In addition, the climate and environment-related vulnerabilities, like the recent sudden floods in the north and northeastern parts of the country, could generate some headwinds on the country's overall price stability and growth prospect, said the BB.

However, increased outflow of migrant workers amid improved economic and working conditions in the employing countries is expected to help the inward remittances grow by 15 per cent in the FY23, returning from the slump in the just ended fiscal year 2021-22.