Bangladesh: Technical Assistance Report-Interest Rate Corridor Adoption

Technical Assistance Reports, June 28, 2024

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Bangladesh: Technical Assistance Report-Interest Rate Corridor Adoption

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Bibliographic details

• Published: June 28, 2024
• Series: Technical Assistance Reports
• DOI: https://doi.org/10.5089/9798400278181.019

Background

• In August 2023, the IMF South Asia Regional Training and Technical Assistance Center (SARTTAC) undertook a Technical Assistance (TA) Mission at Bangladesh Bank (BB).
• The TA advised on the shift from a reserve money targeting monetary policy framework to an interest rate-focused framework announced by BB for July-December 2023.
• The transition provides an opportunity to realign BB's governance and operational frameworks with the new monetary policy framework and to improve monetary policy transmission to support price stability.

Recommended Governance Reforms

• Amend the Bangladesh Bank Order (BBO) to:
  • Give priority to price stability as the objective of monetary policy.
  • Enhance BB's autonomy and accountability.
  • Eliminate direct BB lending to priority sectors.
• Objective: Align the governance structure with the objectives of the updated monetary policy framework.

Operational Framework Adjustments (mission suggestions)

• Implement a weekly 7-day Open Market Operation (OMO) at the policy rate.
• Increase Cash Reserve Ratio (CRR) averaging.
• Provide automatic access to Standing Facilities (SFs).
• Harmonize the legal framework for collateralized liquidity-providing monetary operations.
• Proposed future measures:
  • Improve short-term liquidity forecasting.
  • Improve interbank market trading.

Supportive Measures

• Normalize the foreign exchange market with a clear exchange rate policy.
• Engage in money market development initiatives.
• Participate in the Local Bond Market development project.
• Revise Bangladesh Bank’s communications policy to enhance transparency.

Objectives and Expected Outcomes

• Improve monetary policy transmission under an interest rate-focused framework.
• Support the achievement of BB’s primary mandate of price stability as a prerequisite for macroeconomic stability and stable economic growth.

Content in this bundle

• Technical Assistance Mission Report — Bangladesh Bank
  • Technical Assistance Mission Report — Bangladesh Bank (Markdown version)
  • Technical Assistance Mission Report — Bangladesh Bank (PDF)