DHAKA, Feb 10, 2025 (BSS) - The Bangladesh Bank (BB) has outlined four specific challenges in the monetary policy statement (MPS) for the second half (H2) of the current fiscal year 2024-25 (FY25)  that must be addressed and overcome to ensure the country's economic growth.

 The central bank today unveiled its new monetary policy for H2 of FY25 at a press conference held in its headquarters in the city.

According to the MPS, the Bangladesh economy is undergoing a major transformation, and it will take some time to have positive impacts of various government actions to materialize fully. 

The current interim government's massive economic reform efforts can benefit the economy in the medium to long-term. 

Strong domestic political support for financial sector reforms and commensurate support from international development partners underpin the prospects for further momentum to economic recovery. 

These considerations notwithstanding, the near-term challenges continue to be: bringing down inflation further, maintaining exchange rate stability, sustaining the rebuilding of foreign exchange reserves, and reviving confidence in the banking system. 

In FY25, economic growth is anticipated to decelerate due to output losses reflecting or resulting from the sudden floods in some districts of the country, labor unrests in some industrial belts, gas supply scarcity slowing industrial production, a slow implementation and right-sizing of the Annual Development Programme (ADP), and disruptions in economic activities during the student- led revolution. 

However, a rebound in domestic demand is expected, supported by higher growth in remittance inflows along with continued rise in exports and imports. 

Inflation in Bangladesh still remains above comfortable levels despite recent improvements. Delayed and inadequate policy responses in earlier periods had contributed to this elevated inflationary outcome.

Additionally, the contraction of aggregate supply due to agricultural production losses and disruptions in supply chains caused by the twin floods in August and September 2024 may have further exacerbated the inflation situation. However, a decline in global prices, a moderation of geopolitical tensions, stability in the exchange rate, and recent significant increases in policy rates should help alleviate domestic inflationary pressures in the coming months.

The recent uptick in remittances and export figures indicates a more favorable outlook for the external sector. Future export potentials may arise from the "China plus one" strategy and the imposition of additional tariffs by the US on Chinese exports may lead to diversification of sourcing by the US companies leading to higher Bangladeshi ready-made garment (RMG) exports. Moreover, the anticipated disbursement of additional concessional loans, and technical assistance from foreign governments as well as international financial institutions will likely enhance domestic financial stability and support institutional restructuring, thereby reinforcing domestic macroeconomic stability.

The banking sector continues to face numerous challenges, including rising non-performing loans (NPLs), tighter liquidity conditions, and slowing deposit and credit growth. BB has set up taskforces dedicated to manage and implant banking sector reforms. The stressed banks are under close surveillance, and future actions will be determined based on the outcomes and consistent with the forthcoming Bank Resolution Act.