Policy rate still low: Economist

Bangladesh Bank recently raised the policy rate to tame soaring inflation but the new benchmark is still lower than the country's historic average, said an economist.

On June 30, the central bank raised the policy rate to 5.5 per cent from 5 per cent but the marginal hike saw it remain lower than the historic average of 6.75 per cent registered between September 2009 and June 2022.

The policy rate is the rate at which Bangladesh Bank will pay or charge interest from commercial banks for their loans and deposits.

"There is also no systemic evidence of asset purchase programmes or forward guidance," Yan Islam, an adjunct professor of Griffith Asia Institute in Australia, said at a lecture organised by South Asian Network on Economic Modeling (Sanem).

He made this comment yesterday at a seminar, styled "Macro-policy Responses to COVID-19 in Emerging Economies: Recent Outcomes and Evolving Challenge", at Sanem's head office in Dhaka.

Islam said the emerging market economy (EME) countries responded to the economic consequences of Covid-19 by engaging in significant cuts in policy rates as well as asset purchase programmes.

On the other hand, as of the end of May, China, Thailand and India have either kept their policy rates stable or imposed marginal increases.

"The challenge is to strike the right balance between controlling inflation and safeguarding employment," said Islam, a former branch chief of the Employment Policy Department at the International Labour Organisation in Geneva.

"Concerns about heightened inflation are likely to persuade most central banks to become inflation averse," he added.

In response to a query, Islam said more investment is needed in education, healthcare and establishing adequate employment opportunities to make the best use of Bangladesh's demographic dividend.

Prof Sayema Haque Bidisha, research director of Sanem, conducted the event while Prof Selim Raihan, executive director, was present.