Citigroup sees upward change in policy interest rates in Bangladesh

FE Report

The Citigroup expects an upward movement in policy interest rates environment in Bangladesh with an overall goal to curb inflation proactively in the near future.

"While we continue to expect the Bank (central bank) to manage liquidity through shorter-term instruments as seen in recent months, explicit rate hikes can no longer be ruled out if inflation continues to surprise on the upside," the US-based financial services company said in a report on 'Asia Macro and Strategy Outlook', released this week.

In May 2010, Bangladesh Bank raised the cash reserve requirement (CRR) by 0.5 percentage points to 5.5 per cent for the commercial banks aiming to curb inflationary pressure on the economy.

Under the new rules, the commercial banks have to maintain a 5.5 per cent CRR with the central bank from their total demand and time liabilities on a bi-weekly basis.

The Citigroup said the monetary policy is likely to be proactive. "While active management of liquidity would be imperative, moderating remittance inflows as well as a pick-up in investment activity would help curtail liquidity pressures," it added.

The central bank of Bangladesh has reiterated that it would remain 'proactive in liquidity management operations and policy rate adjustments' as warranted.