Bangladesh Bank’s recent monetary policy has enabled banks to profit by investing in treasury bills and bonds, borrowing against them, and earning up to 4% in profit margins. This strategy, however, has raised concerns about fueling inflation, as it involves substantial money creation. During the 2023-24 fiscal year, the central bank extended a record Tk32.21 lakh crore in loans to commercial banks, with Tk30.34 lakh crore provided through repo and other liquidity facilities. This is a significant increase from the previous year’s total of Tk14.24 lakh crore. Banks are capitalizing on risk-free investments in government securities with interest rates between 11.60% and 12.75%, while borrowing from the central bank at 8.5% to 10%. Critics argue that this approach discourages private sector lending and exacerbates inflation, particularly non-food inflation. Despite efforts to manage liquidity through various facilities, including the newly introduced Islamic Banks Liquidity Facility (IBLF) and collateralized Mudarabah Liquidity Support (MLS), concerns remain that the central bank’s actions are counterproductive to its goal of curbing inflation.
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