Bangladesh Bank Governor Ahsan H Mansur yesterday said the interim government has set a target to reduce inflation to 7 percent by the end of next June and further below 5 percent in the next fiscal year.

"We have reviewed many countries, including the US, the UK, European Union or Thailand," he said.

"…what we have learned is that it will take at least 12 months for the full impact of inflation-curbing measures to be reflected in the inflation target. So, we have to allow that time," he said.

Mansur was speaking at an event titled "Driving Changes: Unlocking the Potential of Bangladesh Financial Market" organised by BRAC EPL Stock Brokerage Ltd at Sheraton Dhaka in the capital.

He said inflation has not yet come down although monetary policies have been tightened and fiscal measures implemented to control domestic borrowing.

"I think all the medications that could be applied has been applied in order to reduce inflation. We are waiting for the body to react to the medication. We are waiting for the economy to react to the doses of economic policy tightening," Mansur said.

Apart from tightening the monetary policy, Mansur said the government also has removed import duties on essential food items like onions, vegetable oil, and sugar to help ease inflationary pressures.

If inflation does not show signs of improvement by January, "we will tighten the monetary policy further" to achieve the desired results, he said.

Highlighting significant economic challenges and ongoing efforts to stabilise the country's financial situation, he said Bangladesh has been actively focusing on foreign exchange, balance of payments and banking sector issues.

One of the most pressing issues, according to Mansur, is that the unsettled LCs, have now been reduced to over $300 million which was initially estimated at over $2.5 billion, with a clear objective to eliminate all pending payments.

"We do not want to tolerate a single non-payment issue," he said.

On the matter of foreign exchange reserves, Mansur explained that the country had been depleting its reserves in previous years to manage imports.

However, with reserves now at a more precarious level of $20 billion, Bangladesh Bank has stopped selling foreign currency for market interventions, he said.

The emphasis now is on allowing the market to determine the exchange rate, without central bank interference, he said.

Talking about the banking sector, Mansur said to address mismanagement, irregularities and bring good governance to the banking sector, the government has introduced a bank resolution act, which grants the central bank the authority to take decisive actions, including liquidation or mergers of troubled banks.