Bangladesh Bank has not confined itself to its sole goal of tackling inflation and is rather addressing risks of instabilities and imbalances through inclusive and environmentally sustainable institutional ethos in financing, its governor said.

Atiur Rahman said BB has deliberately shunned the minimalist orthodoxy of inflation targeting as the sole legitimate objective of the central banking.

“Last decade's global financial crisis has proven this minimalist orthodoxy deficient even for developed economies, but the unconventional approaches of developed economy central banks still go no further than monetary loosening by quantitative easing, in effect sowing seeds of further imbalances, future instabilities and crises.”

“BB and a number of other developing economy central banks have instead been trying to address the risks of instabilities and imbalances at sources, by promoting socially responsible inclusive and environmentally sustainable institutional ethos in financing,” he said. 

Rahman spoke at an international seminar on 'Challenges of price stability, growth and employment in Bangladesh: Role of Bangladesh Bank' in Dhaka on Thursday.

Bangladesh Bank and the International Labour Organisation (ILO) organised the event.

In recent years, the BB has widened its developmental role of playing its part in the national strategy of inclusive growth and is seeking to model itself as a developmental central bank.

Bangladesh is cited among the very few countries where the central bank has an explicit development objective.

Rahman, who promoted pro-poor and SME financing since taking the helm of the central bank in 2009, said BB's sustained motivation, enablement and policy support efforts in promoting inclusive and green financing are paying off well for the Bangladesh economy, in terms of sustained stable 6-plus percent real annual GDP growth spell for well over 12 years now amid persistent global growth slowdown, with stable downtrend in inflation.

“The inclusive quality of Bangladesh's stable, steady growth is evidenced by rapid poverty decline with buoyant, vibrant employment growth in the rural economy supported by inclusive micro, small and medium enterprise financing of farm and off farm output activities.”

“Attention to adequacy of financing for crops, vegetables, dairy, poultry and fishery has yielded substantial output gains in these areas, including self sufficiency in rice and exportable surplus in many agricultural produces.”

The governor said because of the inclusive stance of financing promoted by BB, SMEs and other start-up businesses in Bangladesh faced no credit crunch during or following the global financial crisis.

He said Bangladesh's entire financial sector is now fully on board with BB in mainstreaming inclusive and environmentally responsible financing in the financial sector.

Rahman thanked all development partners for coming forward in extending policy support for SME and green financing with low-cost refinance lines for BB.

At the seminar, Muhammed Muqtada of the ILO presented a study on the role of the central bank in tackling challenges of price stability, growth and employment in Bangladesh.

The study said BB has adequate reasons to engage in multiple mandates, especially in financial structure development and financial inclusion initiatives. 

These, apart from serving the  national  strategy  of  social  inclusion,  could  potentially  lead  to  strengthening  and deepening of the financial sector and, hence, support price stability, according to the study.

With respect to price stability, BB is trying to bring the inflation rate down further through credit channels.

The study contends that BB has an “imprecise control” over price stability owing to weak transmission mechanisms.

Also, its existing instruments have a limited capacity to address volatile food inflation that weighs heavily on general inflation.

“Given the BB's mandates, it would be necessary for it to design a middle- to long-term strategy to strengthen its existing policy stance, and to initiate policies that would allow greater play and effectiveness of its instruments.”

The ILO study advises the central bank to avoid being fetish about a strict adherence to low inflation targets warranting sharp contractionary monetary measures, as the existing monetary policy is likely to be challenged if the economy were to follow the predicted growth path to Vision 2021.

“Greater opening up of the economy and future financial liberalisation would require BB to enforce greater integration of financial market segments and market resilience to avoid disruptions in price and exchange rate stability. The strategy would require more attention to strengthening and accommodation of the increasing importance of the policy rate and exchange rate channels.”

The study also said a well-functioning financial sector would require not only increasing the size of the sector, but also developing secondary markets for securities that would control interbank rates and transactions.

There needs to be a review to assess the real employment and effects of the financial inclusion initiatives, and their sustainability.

“Strengthening and support to mobile banking, automations in payment systems, agent banking, and designing of confidence-building regulations and guidelines could act as an important catalyst towards standardising commercial banking across the country, rural or urban.”