Global Finance's report card: Why Bangladesh Bank governor got D. Who got A+?

Bangladesh Bank Governor Abdur Rouf Talukder was given a D grade as a governor in a ranking by New York-based Global Finance magazine due to the high inflation and devaluation of the taka. Meanwhile, the central bank heads of India, Vietnam and Switzerland got an A+ grade. 

"For Bangladesh Bank (BB), as with many other central banks in the Asia-Pacific region (APAC), the mandate was reasonably met during the first half of the review period: Post-Covid GDP growth was solid at 5.6%, while inflation modestly overshot BB's 5% target by 0.6% and the taka was steady," Global Finance magazine said in its Central Banker Report Cards 2023 published on Sunday (24 September). 

"However, by mid-2022, the taka was devalued by 9.5%; importers struggled with an onshore shortage of dollars; energy and food costs ballooned due to the Ukraine conflict; and inflation ran rampant. Having burned through central bank foreign exchange reserves, a call went out for International Monetary Fund (IMF) support. But the structural weakness of the Bangladeshi economy and the government's 60% control of the central bank produce a vulnerability to externalities such as the inflation shock of 2022," it added.

Zimbabwe's John Mangudya and Suriname's Maurice Roemer also got a D grade along with Bangladesh. Governor Nandalal Weerasinghe, who led Sri Lanka out of bankruptcy and hyperinflation, got an A- grade.

"Shaktikanta Das, the governor of the Reserve Bank of India, has delivered solid GDP growth. In 2021, India's economy grew by 9.1%, near its all-time high, having chalked up 8.7% the previous year. Add to that a promising trajectory in his other significant key performance indicator—controlling inflation—wherein the CPI declined from 6.5% in January to 4.25% in May, justifying a tight money campaign delivered via six repo rate hikes up to an April pause at 6.5%, and Das must be proffered the proverbial cigar for outstanding performance," the report said about the Indian central bank chief. 

"A surge in CPI to 7.4% in July must be dismissed as an outlier due to the effects on food prices of irregular heavy monsoon rains. That pause, which Das describes as "a pause, not a pivot," flew in the face of analysts' consensus that rates would rise by 25 bps. Meanwhile, a headline achievement was the rollout of liquidity rules for nonbank financial companies (NBFCs) and a regulatory framework that came into force last October for the oft-troubled NBFC sector," it added.

Regarding Vietnam, it said: "The State Bank of Vietnam is one of the few central banks to have cut rates this year, bringing the refinance policy rate down four times, to 4.5% as of its last cut, in June. Vietnam's commercial lenders have smoothly passed on these cuts to credit institutions. Governor Nguyen Thi Hong reaffirmed rationalising the country's credit landscape, particularly for the cash-starved small and midsize enterprise sector, which she established at the start of her tenure in 2022."

"She has been instrumental in the banking sector's interest-capping for loans to priority sectors and enhancing the effectiveness of local credit guarantee funds. Annual inflation dropped to just 2.1% in July, a massive achievement in the context of 2022's stratospheric 8% GDP growth and steady 3.3% clip in the first quarter," the report added.

About Switzerland's Thomas Jordan, the report said:  Few central banks globally have done a better job of keeping inflation and interest rates in line with expectations than the Swiss National Bank (SNB) in 2022 and 2023. Despite raising interest rates to a meager 1.75%, the CNB has managed to keep inflation under control, lowering consumer prices from a peak of 3.5% last year to a comfortable 1.6% in August 2023."

"Furthermore, the bank has received high praise from analysts for its timely intervention in the Credit Suisse case, avoiding a widespread banking crisis in the European banking system. In a letter published at the onset of the event, Moody's noted: "Decisive and coordinated response of the federal government, Swiss financial market supervisory authority, and the SNB reinforce our view of Switzerland's significant institutional strength." Despite the pressure from the crisis, the SNB maintained its stance and focused on its mandate, with the positive results now proving the decision correct," it added.

Regarding Pakistan's Jameel Ahmad, who got a C- grade, the report said:  Prior to his August appointment as governor of the State Bank of Pakistan (SBP), Ahmad oversaw the bank's digital transformation as its deputy governor and served as executive director of its Banking Supervision and Financial Stability Group. Ahmad was instrumental in Pakistan's securing a nine-month IMF stand-by arrangement (SBA) for about $3 billion, a core component of which is a market-determined exchange rate. The agreement helped stave off the risk of imminent government default, prompting a 10-point rally in Pakistan's one-year dollar bonds and a 4% rally in the Pakistani rupee. Still, the currency has been in measured decline this year, losing 20% versus the dollar, and inflation hit an all-time high of 38% in May despite the SBP turbocharging the policy rate by 1,125 bps to 21% since April 2022. At 28.3% in July, CPI is above the SBA's fiscal year 2023/2024 projection of 21%."

Since 1994, Global Finance magazine has been grading the governors of different countries of the world; its "Central Banker Report Card" is published regularly as an annual publication of the periodical.

The latest report for 2023 is published based on the assessment of central bank governors of 101 key countries. The report rates central bank governors across countries in five categories — A, B, C, D and F. Among these, A, B, C and D categories are further divided into three sub-categories on the basis of performance evaluation. As such, the governors of this class are rated in A+, A and A- subcategories.

If a country's central bank is considered ineffective and ultimately failing, its governor is ranked in the F grade.

Factors such as tight inflation control, protection of the local currency exchange rate and consolidating foreign exchange reserves emerged as criteria for evaluating governors.

Bangladesh has deteriorated in these indicators in the last year.

Global Finance said it sees the weakness of the economic structure and the government's control over the central bank as the major weakness of the Bangladesh Bank.