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BB moves to stem slide in reserve

The Bangladesh Bank has given the highest priority to tackling the depleting foreign exchange reserve and not giving loans to the government by printing money as part of its short-term measures ahead of the national election in January.

The banking regulator will also prepare a long-term plan for the new government after the election for reforming the banking sector, including reserve management and improving governance.

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The recommendations were made yesterday by Sadiq Ahmed and Ahsan H Mansur, vice-chairman and executive director of the Policy Research Institute of Bangladesh respectively. Their counsel was sought by the central bank and the finance ministry.

The banking regulator has started to take opinions from economists and other stakeholders to ride out the ongoing economic crisis. Last week, BB met with the Wahiduddin Mahmud, a former adviser to the caretaker government.

"The central bank informed us of what measures they have already taken and what will be taken in the upcoming days -- we advised them to take short-term and long-term measures for tackling the ongoing economic crisis," Mansur told The Daily Star after the meeting.

The short-term measures will have to be taken before the election, which are reserve management and curbs on government borrowing from the central bank, he said.

At the meeting, Finance Secretary Md. Khairuzzaman Mozumder said the government will not borrow from the central bank and they have already taken initiatives to bring down public expenses.

Since last year, the country has been grappling with two major problems: a strained dollar stockpile and high inflation.

The foreign exchange reserves continue to fall despite a series of measures by the government to tackle it.

As of September 26, which is the latest published data by the BB, gross foreign currency reserves stood at $21.15 billion, which is enough to meet four months' import bill at best.

"We forecast foreign exchange reserves to stay under pressure, driven by rising imports and foreign currency intervention by the central bank," Fitch said in a report earlier this week.

The reserves cannot be allowed to drop any further, said Mansur, also a former economist of the International Monetary Fund.

"Forex reserve protection is a main challenge at this time. I suggested that the central bank will have to strengthen its monitoring."

The present reserve position is lower than the $24.46 billion threshold put by the IMF for the release of the second tranche of the $4.5 billion loan.

While not much can be done before the polls, after the election various measures must be taken to reform the banking sector, said Mansur, also a former chairman of Brac Bank.

The government will have to cut the expenditure so that the central bank would not need to print fresh money as it fuels inflation, he said.

Inflation advanced 23 basis points in August to 9.92 percent propelled by food inflation, which hit a 12-year-high.

In the last fiscal year that ended in June, the government took a record Tk 98,000 crore in loans from the BB to run its operations.

But a significant injection of such funds, known as high-powered money, contributes to stoking inflationary pressure and Bangladesh is already witnessing record inflation because of that.

"The central bank officials have informed us that they have already stopped funding to the government by printing fresh money," Mansur said, adding that the BB is prepared to take a raft of measures for the betterment of the banking sector.