Abdur Rouf Talukder, Governor of the Bangladesh Bank, hinted at significant changes in Bangladesh’s money market during a session titled “Fiscal and Monetary Policies in the Evolving Economic Order” at the First Development Studies International Conference.

Talukder indicated that Bangladesh is on the verge of transitioning to market-based interest rates, emphasizing a move away from regulator-dictated rates to a system where banks can set interest rates based on supply and demand dynamics. 

He mentioned that the benchmark SMART rate served as an interim measure en route to fully embracing market-based interest rates.

The Governor also disclosed plans to adopt a market-determined exchange rate, indicating a departure from the current fixed exchange rate regime. He suggested the introduction of a crawling peg as an interim measure before transitioning to a fully market-based exchange rate system.

These proposed changes align with recommendations from an IMF loan appraisal mission, signaling a commitment to reforms to enhance Bangladesh’s financial system’s efficiency and flexibility. 

Talukder emphasized that the central bank is refraining from purchasing government bonds, signaling a shift towards greater market reliance.

During the session, three former central bank governors and two former finance secretaries echoed the importance of coordinating fiscal and monetary policies for macroeconomic stability. They emphasized the need for modifications and reforms in both policies to adapt to the evolving global economic landscape.

Former governor Saleh Uddin Ahmed stressed the importance of autonomy for the central bank in navigating economic challenges and cautioned against succumbing to pressure from various interest groups.

Fazle Kabir, another former governor, highlighted the significance of coordinated fiscal and monetary policies, citing examples of government support to businesses during the COVID-19 pandemic as a demonstration of effective coordination.

Former finance secretary Dr. Mohammad Tareque emphasized the importance of maintaining the Taka’s value, financial stability, and governance in monetary policy formulation. He expressed concerns about the economy’s declining depth, measured by the M2/GDP ratio, and urged improvements in this regard.

Mohammad Muslim Chowdhury, another former finance secretary, advocated for increasing the share of direct taxes in total revenue to reduce inequality and injustice in society.

Moderating the discussion, former governor Dr. Atitur Rahman emphasized the need for fiscal and monetary policies to adapt to global uncertainties and their spillover effects on Bangladesh. He underscored the importance of aligning policies with the rapidly changing global scenario to ensure economic resilience and stability.