IMF $690 million loan: Cautious monetary policy, flexible exchange rate policy among recommendations

A cautious monetary policy, flexible fiscal policy for currency exchange rate and increasing resilience to external shocks are among the recommendations prescribed by the International Monetary Fund (IMF) during the approval of releasing the second tranche of $690 million of a $4.7 l-billion loan for Bangladesh.

The IMF recommended a cautious monetary policy to restore macroeconomic stability in the short term.

Along with this, the global lender has said to be more flexible fiscal policy in the currency exchange rate as a support of the policy.

The IMF recommended taking these measures along with increasing resilience to external shocks

It also appreciated the Bangladesh Bank's initiative to modernise the monetary policy framework further.

"If monetary policy is modern, it will reduce inflation and strengthen the effect of central bank policy in various areas," the IMF said in the meeting.

"Praising the currency's decision to adopt a single exchange rate, the IMF insisted on  more flexibility gradually. They think it is necessary to deal with external shocks in the economy," said the IMF.

However, among the $690 million, nearly $468.3 million will be given under the ECF/EFF arrangement and $221.5 million under the RSF arrangement.

The ECF/EFF and RSF arrangements count $4.7 billion for Bangladesh, approved by the executive board on 30 January. The first tranche count of $476 million was made available in February this year.

"The ECF/EFF arrangement has helped restore macroeconomic stability and prevent disruptive adjustments to protect the vulnerable while laying the foundations for strong, inclusive, and environmentally sustainable growth," the IMF said in a release on Wednesday.

The concurrent RSF arrangement supplemented the resources made available under the ECF/EFF. 

The IMF said this fund will help catalyse additional financing and build resilience against long-term climate risks.