The Bangladesh Bank (BB) has unveiled the monetary policy today for the new fiscal year raising policy rate and cutting down private sector credit growth aiming to check inflation by tightening money flow in the market.

The policy rate also known as repo rate was increased to 5.50% from 5% in the new monetary policy the governor announced on Thursday (30 June).

The regulator has taken a cautious policy stance with a tightening bias in the new monetary policy.

Private sector credit growth ceiling has been set at 14.1% for the next fiscal year, down from 14.8% that was set for the outgoing fiscal year.

The central bank will introduce a new refinance line of credit for import-substituting products to minimise import dependency and save valuable foreign exchange reserves.

The LC margins for luxury goods, fruits, non-cereal foods, canned and processed foods will be increased comprehensively to discourage their imports.

BB will continue its support to implement the government's ongoing stimulus packages alongside BB's refinance schemes in the face of new adversities, including the Russia-Ukraine war in addition to the Covid-19 pandemic.

Bangladesh Bank Governor Fazle Kabir said a review of the latest state of the global and domestic economy, and the recent economic impact of floods in the northeast shows that the main challenge for the monetary policy for FY2022-23 would be to stabilise the domestic exchange rate.

"At the same time, continued support for ongoing economic recovery aimed at job creation is essential for the forthcoming monetary policy."

According to the finance minister's national budget speech, the government's desired GDP growth and inflation targets for FY 2022-23 are 7.5% and 5.6%, respectively.

"Bangladesh Bank will continue to strive for the overall stability and long-term development of the capital market, which is essential for the development of the country's financial sector, in FY2022-23 as in the past. In order to increase the liquidity in the capital market, the size of the assistance fund for the affected small investors has been increased by Tk153 crore to Tk1,009 crore at the initiative of Bangladesh Bank.

"Apart from releasing Tk280 crore from this fund, Tk118 crore has been provided through repo under the facility of setting up a special fund of Tk200 crore for each bank's investment in the capital market", said the governor.