Bangladesh Bank (BB) has formed a new intelligence unit to fight money laundering and establish more discipline and transparency in financial sector.

The unit, Bangladesh Financial Intelligence Unit (BFIU), will replace the BB’s Anti-Money Laundering Department and Financial Intelligence Unit, a press release of the central bank said. BFIU will carry out its operation as per power bestowed upon it by the Anti-Money Laundering Ordinance 2012, Anti- Terrorism Act 2009 and Anti-Terrorism Ordinance, 2012 (Amended).

BFIU will now take over the manpower and activities of the anti-money laundering department.
The deputy government who has been given the responsibility of the newly formed BFIU will act as head of BFIU, the executive director as deputy head of BFIU and the general manager as operational head of BFIU.

The Daily Independent/Bangladesh/ 30th Jan 2012

Bangladesh Bank has taken initiatives to set up the National Payment Switch (NPS) to modernise the existing electronic payment system.

The central bank has signed an agreement with ‘Infotech Global Private Ltd’, a Singapore-based company on Thursday to implement the project.

The NPS project is being implemented BB under the ‘Central Bank Strengthening Project’, financed by the World Bank.

The NPS is included with the national information and communication technology policy-2009 of the government.

Project Director of NPS and Executive Director of BB, Md Ahsan Ullah presided over the signing ceremony where BB’s Executive Directors-- Dasgupta Ashim Kumar, Md Abdul Hamid and other senior officials of BB and Infotech Ltd were also present.

Infotech was given the contract through an open international tender.
IBCS Primax Bangladesh Ltd, a local IT firm, has been working with this project as the local representative in implementing the project.

The Daily Sun/Bangladesh/ 27th Jan 2012

Atiur Rahman

The central bank has announced five steps that include hiking interest rates on savings certificates, mobilising more external and domestic resources and rationalising public expenditures to implement its monetary policy.

The plans came as Bangladesh Bank Governor Atiur Rahman yesterday announced the bank's Monetary Policy Statement for the second half of the current fiscal year, which tightened the policy further to curb soaring inflation and reduce pressure on rocketing exchange rate.

"Ensuring positive real interest rates will strengthen monetary transmission channels, curb non-essential imports, stabilise external reserves and lead to an equilibrium in exchange rate," said the governor at a press briefing at his office in Dhaka.

First, the central bank said there is scope for increasing private sector credit growth for productive investments beyond the programmed level if there is a reduction in growth in credit to the public sector.

The BB also said it plans to reduce the demand for consumer loans to increase the share of lending going towards growth-enhancing investment purposes.

"We will discourage investment in risky sectors. We, however, do not mean investment in stockmarket as risky," Allah Malik Kazemi, a senior consultant of the central bank, told journalists after the briefing.

"There are many loans in the SME (small and medium enterprise) sector that are risky."
Second, the BB will ensure liquidity support for banks, so that productive credit growth is not crowded out. In future, the government's borrowing calendar will need to be modified to allow for a higher percentage of debt auctions in Treasury bills, as the long dated Treasury bonds lack liquidity in the absence of an active secondary market.

Third, while the interest rate regime will remain liberalised, the central bank will focus more on monitoring interest rate spreads so that they remain below 5 percent except for SME lending (as the costs of SME operations are higher) and consumer lending.

Fourth, the central bank said, in order to reach the new external sector equilibrium, overall import demand needs to be rationalised. Opening of letters of credits for non-essential and luxury items will be discouraged, while those for essentials such as petroleum will be unhindered.

The BB said a new coordination committee would aim to ensure that taka liquidity is provided ahead of time so that banks can purchase the needed foreign exchange on the inter-bank market on a regular basis.
As a result, lumpy Bangladesh Petroleum Corporation payments can be met instead of approaching the BB for foreign exchange.

Fifth, the central bank will take further steps to improve the stability and outreach of its financial system.
The BB also said the monetary growth targets for fiscal 2012 are on track that established the credibility of the stance taken in the previous MPS.

In November 2011, reserve money growth and broad money growth were 15.4 percent and 17.7 percent respectively, well below the 16 percent and 18.5 percent targets set out in the July MPS.

"This stance was achieved through open market operations, raising the repo rates by 100 basis points in FY 2012 and lifting caps on lending interest rates other than for agricultural and pre-shipment export credit," said the MPS.

While weighted average lending rates have gone up on average by 1.6 percentage points in 2011, the BB said it is closely monitoring spreads so that they remain in low single digits for all sectors, except SME and consumer credit.

"This stance, along with pro-active liquidity management still ensured adequate year on year private sector credit growth -- more than sufficient to sustain economic growth targets, in line with earlier years and above that of India."

The BB said the extent of crowding out is limited as the weight of government borrowing in total domestic credit remains around 20 percent, which will free up more room for private sector credit growth.

It also said cross-country experiences from around the region illustrate the importance in Bangladesh of using monetary policy to act preemptively to mitigate risks from domestic and external imbalances.

The Daily Star/Bangladesh/ 27th Jan 2012

Bangladesh Bank (BB) is taking strict legal stand including operating mobile court to punish the people who are involved in producing fake notes and circulating those in public to make their fortune.

“We are planning necessary changes to the existing rules and regulations to bring people behind bar who are responsible for forging currency notes,” a high BB official told BSS yesterday.

He said the changes would empower the central bank operate mobile court with support from the law enforcing agencies to punish people in a faster process for forging currency notes.

The official said the respective committee of the central bank would sit on Thursday with authorities concerned to discuss about the necessary changes and take effective steps to protect people from incurring loss to currency forgery.

The Daily Sun/Bangladesh/ 26th Jan 2012

The government's hefty borrowing from banks and a poor flow of foreign aid have emerged as a double setback to the economy.

“If the government continues to spend without getting foreign aid, the situation may worsen further,” a senior Bangladesh Bank (BB) official told The Daily Star yesterday.

The issue is likely to get major attention in today's monetary policy.

Though the government set its bank borrowing at Tk 19,000 crore in the budget, it crossed the limit in the first week of December. However, borrowing came down to Tk 16,000 crore in January from around Tk 22,000 crore in December.

It has impacted the dollar-taka exchange rate. “There is a dollar component in the government borrowing, which has contributed to a surge in demand and price of the greenback,” said the BB official. He cited examples of petroleum and fertiliser imports.

The taka has depreciated against the dollar by over 15 percent in 2011 and the downtrend continues. A US dollar sold at Tk 85 for import payments yesterday. The devaluation affects consumers of Bangladesh, an import-dependent nation.

The inflow of foreign aid that narrows the gap between demand and supply of foreign currency has slowed significantly this year.

Officials of the Economic Relations Division (ERD) said Bangladesh received $807 million in foreign aid during the first half of the current fiscal year, down from $984 million for the same period last year. Of this year's foreign aid, 507 million or 63 percent was paid as principal and interest.

According to ERD, the aid commitment of the major donors was $2.8 billion for the first half of this fiscal year.

The gap between a demand and supply of the greenback remains high this year, said another BB official of the foreign exchange and treasury management department.

If the government received the promised aid, such a mismatch between demand and supply would not be there.

“What we can do is tighten imports. The LC opening in December shows a negative 8 percent growth compared to the previous month,” said the official, supporting BB's policy stance.

The Daily Star/Bangladesh/ 26th Jan 2012