Professor Wahiduddin Mahmud has suggested that the Bangladesh Bank refrain from "injecting new money" to lend the government.
The economist has also emphasised the need to strengthen the proper implementation and monitoring of the policies that the central bank has undertaken to restore economic balance, Bangladesh Bank spokesperson Md Mezbaul Haque briefed journalists on Thursday.
Prof Wahiduddin's advice came as the central bank, which is responsible for inflation control, has opted to consult economists, bankers, and journalists in addressing the economic crisis primarily triggered by the Russia-Ukraine war.
"We have told the economist that we will refrain from giving loans to the government through devolvement. We have not made devolvement in the last several auctions. The government has been told to take loans from banks," Mezbaul told reporters after central bank Governor Abdur Rouf Talukder's meeting with Prof Wahiduddin at the central bank headquarters in Dhaka.
The spokesperson said, "Inflation control is very important to solve the country's economic crisis. So, we have decided to discuss this with people from various sectors of the economy. The next monetary policy will be formulated according to these suggestions.
"Even in the midst of the global crisis, we have managed better than other countries. It is true that we are still in crisis. But we are trying to solve that crisis."
He mentioned that the central bank will incorporate the economists' suggestions into the upcoming monetary policy. The nation's economic crisis has largely abated, and the country is on a path toward recovering from its significant economic challenges.
Mezbaul Haque stated that there were three major challenges in controlling inflation. One of these challenges is the significant devaluation of the exchange rate, which has had an impact on price levels. Additionally, the government heavily borrowed from the central bank for subsidies. Furthermore, the interest rates on foreign currency sources have experienced a substantial increase.
Following a slight decline in inflation in June and July, it surged once more in August to 9.92%, with food inflation reaching a 12-year high at 12.54%.
The government's bank borrowing marked a historic high in the just-concluded fiscal year, surpassing the budgetary targets, as it had to highly depend on the banking system for financing amid a revenue shortage and a slowdown in the inflow of foreign funds.
The total borrowing from the banking system stood at Tk1.24 lakh crore at the end of June 2023, higher than the borrowing target of Tk1.15 lakh set in the revised budget for fiscal 2022-23. Of the borrowed figure, 80%, or nearly Tk1 lakh crore, was taken from the Bangladesh Bank. Most of the central bank's lending was to support the government by creating new money.
The spokesperson explained, "Our financial account is in the negative. One of the reasons is the high interest rates in developed countries, which have significantly reduced the support we receive from the international money market in foreign currency.
"Overnight adjustment of financial accounts is not feasible. We have managed to partially control the trade balance through various measures, including import controls, boosting exports, and increasing remittance inflows."