Liquidity picking up, but inflation remains high

The liquidity position is improving and the external balance is showing signs of recovery after years of strain, but inflation still remains a major concern for the central bank, said Bangladesh Bank (BB) Governor Ahsan H Mansur.

He said inflation has been stuck above 8 percent in recent months and their goal is to bring it down to below 5 percent.

At a seminar titled “Understanding Pulse of the Economy Through Purchasing Managers Index (PMI)” on Monday, the governor said deposit growth, foreign exchange reserves, and money market conditions have all improved in recent months, but price pressures were proving difficult to tame.

At the event, jointly organised by the Metropolitan Chamber of Commerce (MCCI)and Industry and Policy Exchange Bangladesh at the MCCI office in Dhaka, Mansur said Bangladesh is on track to meet or exceed its foreign exchange reserve target of $35 billion this fiscal year, even without support from the International Monetary Fund (IMF).

“If anything comes from the IMF, it will be icing on the cake,” he said.

He added that recent liquidity growth has been driven by balance of payments surpluses rather than deficit financing, with central bank purchases of foreign currency boosting reserves. Deposit growth rose from 6.4 percent in December 2022 to 11 percent in 2023 and is expected to reach 14 percent this year, creating room for banks to cut prime lending rates by around 2 percentage points.

However, Mansur cautioned against cutting interest rates too quickly, saying that premature easing could destabilise the exchange rate. 

He said easing global commodity prices, a stable currency, and better domestic supply conditions should gradually help reduce inflation.

At the programme, James Goldman, deputy high commissioner and development director at the British High Commission in Dhaka, reiterated the United Kingdom’s commitment to supporting Bangladesh as it prepares to graduate from least developed country status this year.

He stressed the importance of reliable data, strong institutions, and transparent regulations in sustaining long-term growth. “Good data builds trust and supports sound policymaking,” he said, praising the Purchasing Managers’ Index (PMI) initiative for improving transparency. 

Zaidi Sattar, chairman of the Policy Research Institute, said the PMI had emerged as a useful leading indicator that offered early signals on the direction of the economy. 

M Masrur Reaz, chairman and chief executive of Policy Exchange Bangladesh, said the PMI helped fill a critical gap by providing timely insights into business activity. 

He said traditional government data, while comprehensive, often arrived late or was not regular. 

The PMI, developed with the MCCI and supported by the UK Foreign, Commonwealth and Development Office, tracks monthly activity across agriculture, manufacturing, services, and construction.

Kamran T Rahman, president of MCCI, said the PMI could act as an early warning system if properly used by policymakers, investors, and businesses. “PMI offers real-time insights into business sentiment across key sectors. It helps detect economic shifts before they appear in traditional statistics,” he said.