The economic fallout from the global coronavirus pandemic had set the stage for Bangladesh Bank to show its mettle: did it cower under the enormity of the task of steering the economy during the most unusual time or live up to the challenge?
Like the rest of the world, the central bank was not prepared for the foreign disease. After a cagey start, the central bank came into its own, taking a host of measure that prevented the high-flying Bangladesh economy from crashlanding.
Its officials worked round-the-clock to implement the 20 stimulus packages announced by the government to tide the economy over the pandemic shock.
The packages have been provided in the form of low-cost loans to micro, small, medium and large industries, services sector and farmers, which were badly impacted by the pandemic.
“The Bangladesh Bank played an important role in keeping the financial sector in a strong position amid the ongoing pandemic,” said Bangladesh Bank spokesperson Md. Serajul Islam.
To implement the government announced stimulus packages, the BB has injected more than Tk 30,000crore into the money market in the form of refinancing schemes to support the businesses and farmers.
On May 3, it suspended the interest on all types of loans for April and May to help borrowers overcome the economic hit from the countrywide shutdown announced by the government on March 26 to slow the spread of coronavirus.
Earlier on March 20, the BB announced that no banks would be allowed to downgrade any loan until June 30, meaning that failure of any borrower to repay loan instalments in the January-June period would not result in any default of the borrower.
The loan moratorium facility has been extended to December 31.
All kinds of initiatives had been taken by the central bank amid the pandemic to protect the borrowers and small businesses, said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.
“They were given some breathing space amid the public health crisis.”
The central bank had to play a proactive role in implementing the stimulus package announced by the government, he added.
On July 29, the BB unveiled an expansionary monetary policy, lowering the borrowing costs through slashing different policy rates to boost the flow of money into the economy.
As part of its move to make funds cheaper for banks, the BB had slashed the repurchase agreement (repo) rate -- which is the rate that is used to signal the central bank’s monetary policy stance -- by 50 basis points to 4.75 per cent.
The central bank also cut the reverse repo rate by 75 basis points to 4 per cent and the bank rate by 100 basis points to 4 per cent.
A reverse repo agreement is the purchase of securities with the agreement to sell them at a higher price at a specific date in future. In Bangladesh, banks deposit their money with the central bank at a rate set by the latter.
The bank rate, which is another major tool of the central bank, was cut after 17 years as part of the expansionary monetary policy. The BB, on the whole, uses the rate while giving out money to banks under its refinance scheme.
Despite several initiatives by the central bank to boost money flow into the market, banks were very reluctant to disburse loans.
As a result, private sector credit growth has been hovering around the 9 per cent-mark since July against the central bank’s target of 14.8 per cent.
Now, banks are sitting on the biggest pile of surplus liquidity in at least two years owing to the expansionary monetary policy.
At the end of September, excess liquidity in the banking sector stood at Tk 169,658 crore, according to data from the BB.
“The central bank could not do proper monitoring over the banks this year,” said Salehuddin Ahmed, a former governor of the BB.
As a result, the implementation of the stimulus packages by banks was very slow, especially for small and medium enterprises.
There were also some questions about the role of the regulator in bringing good governance and discipline into the banking sector.
“But there is no denying that the central bank had taken time-befitting initiatives to tackle the impact of the pandemic.”
