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Govt Considers Reducing High Powered Money Supply

Economic Tag: Central Bank, Govt.

The government is considering curtailing the injection of high-powered money supply into the economy to combat rising inflation. The shift in policy by the Bangladesh Bank comes in response to criticism from economists and analysts who argue that increased dependence on newly circulated credits supplied by the central bank will contribute to inflationary pressures.

To meet budgetary shortfalls, the government has enhanced its domestic borrowing, particularly from the banking system, since early last fiscal. In the fiscal year 2023, the net volume of ‘devolvement’ carried out by the Bangladesh Bank (BB) stood at Tk 797 billion, a substantial increase from the previous fiscal year’s Tk 290 billion. However, in the current financial year (FY’2024), the pace of high-powered money’s share slowed significantly, with the volume of devolvement-driven fund push amounting to Tk 137.20 billion in July 2023 and further dropping to Tk 56.28 billion in August.

As of September 13, 2023, no newly-circulated money was injected into the market, and instead, the government repaid Tk 22.21 billion to the BB. With this policy shift, the overall net outstanding of print money amounts to Tk 828.50 billion. Economists suggest that the government should focus on austerity measures to reduce pressure on banks and combat inflation effectively.

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