Finance Adviser Salehuddin Ahmed has said sharply reducing high lending rates is no easy feat, stressing the need for consistency in monetary policy.
“It is not very easy to reduce interest rates suddenly. There is the bank rate and the treasury bill rate. If you push one side down quickly, the other side will inflate like a balloon and may eventually burst. So consistency is required,” he said.
He made the remarks on Saturday at the launch of the seventh edition of the Banking Almanac at CIRDAP auditorium in Dhaka.

The finance advisor said policy interest rates had been raised to rein in inflation, while the removal of the long-standing 6-9 per cent interest rate cap had pushed lending rates to around 14-15 percent.
As a result, investment has fallen sharply amid political uncertainty and a deteriorating law and order, he said. He noted that although higher interest rates were intended to curb inflation, prices have remained on an upward trend over the past two months.
He also acknowledged that interest rates alone are not sufficient to control inflation.

“Interest has not remained unchanged,” he said. “Treasury bill rates have come down. I think they were around 12 percent and now closer to 10 percent. Those who invest in treasury bills can see that. So rates are declining and this is being reflected in the market, even if the data has not yet fully come in.”
He cautioned that excessive government borrowing through treasury bills could divert savings away from banks.
“If government borrowing rises, people will not keep money in banks. They will move to savings certificates or treasury bills. That is not what we want,” he said.
He stressed that banks and non-bank financial institutions act as intermediaries, creating a bridge between savings and credit.

Salehuddin said banking sector and overall macroeconomic stability that the interim government had inherited were “largely stable”, though inflation remains highly sensitive.

“Inflation cannot be controlled only through monetary policy or by increasing the policy rate,” he said. “Often it has to be managed through supply-side measures. That is why I always say inflation has a political dimension.”
Referring to market monitoring, he said punitive measures alone were ineffective. “You send a magistrate to Karwan Bazar, impose a Tk 500,000 fine, and soon everyone chips in Tk 500 to pay it. Then business continues as before. That is not a solution.”
He said wholesalers, retailers and communities must cooperate to prevent excessive profiteering and hoarding, noting that governments alone cannot ensure smooth market operations.
Claiming that Bangladesh’s economy has now been brought to a relatively stable position, the finance advisor said the next government would need to maintain that continuity.
The event was chaired by former caretaker government advisor Hossain Zillur Rahman. Others present included Finance Secretary Md Khairuzzaman Mozumder, Financial Institutions Division Secretary Nazma Mobarek, Bangladesh Bank Deputy Governor Nurun Nahar, and Bangladesh Association of Banks Chairman Abdul Hai Sarker. �”bdnews24.com