The significant drop in imports by over 18% during the first half of FY24 in Bangladesh, alongside a decline in the settlement of letters of credit (LCs) compared to the same period in the previous fiscal year, reflects a challenging economic landscape. This decline is part of a broader trend, with overall import orders also decreasing by 5.33% year-on-year.
Several factors contribute to this decline, including the country’s trade deficit in the previous fiscal year, which decreased by 48.41% year-on-year amid shrinking foreign exchange reserves and subdued imports. To address this, the Bangladesh Bank has implemented measures aimed at discouraging imports to bolster the country’s forex reserves, which currently stand at around $20 billion.
In response to the economic challenges, the central bank has adopted strategic directives in its half-yearly monetary policy for January to June 2024. These directives focus on maintaining a vigilant approach to monetary policy until inflation rates are brought under control. In line with this, the bank has increased its policy rate by 25 basis points to 8%, marking the ninth consecutive rate hike in the past 20 months. This adjustment aims to address demand-side pressures while ensuring the necessary flow of funds to priority and production sectors to stimulate supply-side activities.
The decision to increase the policy rate comes amidst elevated consumer prices, with Bangladesh’s inflation reaching 9.93% in October, surpassing the central bank’s previous target of 6% for the current fiscal year. The central bank’s proactive stance underscores the challenges facing the economy as it navigates through the latter half of the fiscal year, emphasizing the need for comprehensive measures to address the multifaceted economic landscape.