[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

Taka to trade more freely by next month

Bangladesh will introduce a crawling peg system by next month to make the exchange rate more flexible and improve the foreign currency reserves, a key prescription from the International Monetary Fund.

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Taka to trade more freely by next month
BB to introduce crawling peg system to give more freedom to exchange rate

The Bangladesh Bank headquarters in Dhaka.Photo: Star

Bangladesh will introduce a crawling peg system by next month to make the exchange rate more flexible and improve the foreign currency reserves, a key prescription from the International Monetary Fund.

The crawling peg system is a method of exchange rate adjustments in which a currency with a fixed exchange rate is allowed to fluctuate to some extent. Typically, the system helps control currency swings, usually during threats of devaluation. Currency pegs are established by developing economies whose currencies are linked to the dollar or the euro.

Bangladesh Bank has already informed the IMF about the system being implemented for the taka.

Bangladesh entered an IMF loan programme for $4.7 billion in January last year. An IMF mission has been in Dhaka since April 24 to review the economic health of the country and whether it is meeting the loan conditions before the third tranche is released. The mission will also finalise new or revised conditions, which could include a lower reserves target.

A central bank high official said they were hopeful of launching the crawling peg system by June, as preparations were at the final stages. Since November last year, the IMF has urged Bangladesh to go for the system.

"I think where Bangladesh was struggling a little bit was the fact that while the current account was adjusting well, partly because they were restraints on imports and so on, the financial account wasn't doing very well," Krishna Srinivasan, IMF director of the Asia and Pacific, said on April 30 during a virtual briefing.

"You could see that in the bleeding of reserves and the taka coming under pressure. Now, it's important that the next stage of the reform agenda is to allow greater exchange rate flexibility, which would help you address the problems in the external sector in the financial account," he said. "Once you do that, you'll see a greater sense of stability coming back in the external accounts."

Although the central bank in its Monetary Policy Statement (MPS) in January mentioned introducing the crawling peg system, there had been no visible step in this regard.

The crawling peg system would be linked to a carefully selected set of currencies and operate within a predefined exchange rate band. This strategy is aimed at tempering unusual fluctuations in the currency's value.

"The central bank would establish a stable benchmark while retaining the flexibility to intervene in the market as necessary to maintain the currency within the designated boundaries," Bangladesh Bank said.

On paper, the central bank introduced the market-based exchange rate in July last year. In practice, however, the exchange rate is fixed by the Bangladesh Foreign Exchange Dealers' Association and the Association of Bankers, Bangladesh on unofficial instructions from the central bank.

The existing exchange rate was fixed about three months ago.

According to the central bank statistics, during the July-February period of the current fiscal year, the current account balance, a major component of the Balance of Payment (BoP), was in surplus by $4.7 billion.

In contrast, the financial account, another key part of the BoP that includes foreign direct investments and short-, medium-, and long-term loans, suffered an $8.3 billion deficit.

This is nearly four times the deficit from the same period a year ago, as shown by the central bank.

On the other hand, the net trade credit deficit stood at $10.75 billion in the same period, which was $3.55 billion in the same period of the last fiscal year.

According to the IMF assessment, the exchange rate not being market-based is the reason behind the deficit in the financial account. As a result, export proceeds were not coming to the country while remittances were coming through unofficial channels.

Since the launch of the IMF's loan programme, Bangladesh has been unable to meet the conditions set for net international reserves.

As Bangladesh could not meet the target set for June last year, the country had to get a waiver to secure the second tranche.

For the third tranche, the net international reserves target was revised down to $17.78 billion for December, but the country fell short by $58 million.

For the fourth tranche, the IMF set the net international reserves target for June this year at $20.1 billion.

Bangladesh is unlikely to meet the target.

In this context, the country has sought IMF's consideration to lower the latest net international reserves target as well. A central bank official said the visiting IMF mission, which leaves on May 8, has agreed to revise down the target. However, the figure has not been fixed yet.​

 

[Saif]

IMF to make concession once again

The Bangladesh Bank is likely to get concession in maintaining the net international reserve once again under the current $4.7 billion loan programme with the...

www.newagebd.net

IMF to make concession once again
Staff Correspondent 06 May, 2024, 23:58

The Bangladesh Bank is likely to get concession in maintaining the net international reserve once again under the current $4.7 billion loan programme with the International Monetary Fund.

The forex reserve requirement may be revised down to around $18 billion from $20.10 billion for the deadline of June this year, said Finance Division officials.

They said that the IMF mission, now in the capital to review the criteria until December for the disbursement of the third tranche by this month, has given green signal for readjustment of the forex reserve requirement linked to the disbursement of the next tranche in December.

During the previous review held in October, the international lender also brought down the forex reserve requirement to $17.78 billion from $26.8 billion for the deadline of December following requests by the government .

But the BB failed to achieve due to a shortfall of around $58 million.

The IMF mission is likely to meet with the BB governor today to finalise the readjustment of the forex reserve targets under the programme that will expire in May 2026.

The government sought the IMF loan to tackle the shortage of foreign currencies as well as downturns in the overall economic activities.

The Washington-based multilateral lender has already disbursed $1.1 billion in two installments.

Forex reserve requirement is one of the main criteria of the IMF loan agreement.

The lender has been suggesting the BB to introduce the proposed crawling peg for determining the exchange rate and ease pressure on forex reserves.

The central bank sold $11.67 billion from the forex reserves between July and April.

Finance ministry officials said that the IMF has also agreed to give concession on the revenue collection target set under the June performance indicators.

The revenue collection target set at Tk 3.94 lakh crore is likely to be revised down by around Tk 10,000 crore.

The National Board of Revenue, however, exceeded its revised target in collecting taxes in the July–December period of FY24 in which it collected Tk 1,65,630 crore against the revised target of Tk 1,43,640 crore.​

 

[Saif]

Three difficult choices to heal economy

Bangladesh yesterday made three major decisions to cushion the economy against critical risks such as stubborn inflation and depletion of foreign currency reserves.

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Three difficult choices to heal economy
Central bank devalues local currency by Tk 7, raises key policy rate and makes lending rates fully market-based

The Bangladesh Bank headquarters in Dhaka.Photo: Star

Bangladesh yesterday made three major decisions to cushion the economy against critical risks such as stubborn inflation and depletion of foreign currency reserves.

In a rare move, the central bank devalued the local currency by Tk 7 to Tk 117, the steepest slide in a day against the mighty dollar. What is more, it loosened its age-old grip on the taka as it will now follow the crawling peg, a flexible exchange rate system.

Bangladesh Bank has also made lending rates fully market-based, abandoning a treasury bill-linked formula for banks. This marks a major shift from the command-and-control mechanism imposed on banks four years ago.

The monetary authority also raised the overnight repurchase agreement rate, a form of short-term borrowing cost for banks, by 50 basis points to 8.5 percent, the second straight hike this year.

The three decisions coincided with the International Monetary Fund's pledge to give Bangladesh $1.15 billion in loans. The steps reflect the authorities' struggle to bring the economy back on track.

IMF Loan to Bangladesh: IMF recommends calibrated monetary tightening, exchange rate flexibility

According to the monetary policy committee of the BB, the economy faced two critical challenges -- persistently high inflation and depleting foreign exchange reserves.

Although the BB and the government have taken various measures to curb inflation, stabilise the exchange rate and protect the erosion of foreign exchange reserves, inflation remains stubbornly high and the foreign exchange reserve situation is not improving to the desired level, the central bank said.

Inflation has stayed above 9 percent since March last year, and the local currency weakened by 35 percent against the US dollar in the past two years. The country's reserves have more than halved, bringing about one of the worst economic crises for the low-middle-income nation. It has been struggling to raise enough taxes to meet its growing expenses.

The central bank's decisions came as an IMF team, led by Chris Papageorgiou, wrapped up its 15-day visit to Bangladesh yesterday. During the visit, it discussed economic and financial policies in the context of the second review of the loan programme.

In a statement, Chris Papageorgiou described the BB's actions as bold, which are aimed at realigning the exchange rate and simultaneously adopting a crawling peg regime.

Talking to The Daily Star, Syed Mahbubur Rahman, managing director of Mutual Trust Bank, welcomed the scrapping of the SMART formula. "Now, the interest rate will be market-driven," he said.

Since the policy rate has been revised upwards and the reference lending rate, known as SMART, has also been scrapped, the interest rate may rise. This will make funds costlier, which may help the central bank contain the demand but deal a blow to borrowers.

Similarly, the spike in the exchange rate may come as a boon for exporters and remitters because they will get a better US dollar rate whereas importers will have to pay more to buy goods and inputs from the global market.

"The flexible exchange rate was necessary for us as the cost of doing business has risen significantly due to increasing gas and power tariffs. The government also reduced the cash incentive on export receipts," said SM Mannan Kochi, president of the Bangladesh Garment Manufacturers and Exporters Association.

Ashraf Ahmed, president of Dhaka Chamber of Commerce and Industry, said the move towards a market-based exchange rate was a step in the right direction.

Subir Kumar Ghose, chief executive officer of Partex Petro Ltd, predicts that the interest rate in the banking sector may soar up to 20 percent.

The average lending rate was less than 14 percent yesterday.

Humayun Rashid, managing director of Energypac Power Generation, said the rate of interest will go up immediately as banks are collecting deposits at higher rates.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh, thinks the flexible interest rate and the exchange rate would help reduce capital flights from Bangladesh.

Ahsan H Mansur, executive director of the Policy Research Institute, said the spike in interest rates may slow the economy further. "But it is necessary to overcome the challenges."

He said the introduction of the crawling peg would stabilise the taka-dollar exchange rate and improve foreign exchange reserves.

"The taka may depreciate further," he said, urging the government to discontinue the subsidy on remittances.

Asked whether the measures will bring back stability to the economy, the former economist of the IMF, said, "These are necessary steps, but not sufficient. However, without these steps, it will not be possible to help the economy overcome the crisis."

Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said that of the three BB steps, the abolition of the SMART system was the most significant.

"The market-based interest rate is nothing new for us. Bangladesh has been following it since the economic liberalisation in the 1990s. Therefore, there is nothing to be worried about, and banks and other financial institutions are well-experienced in running operations under such a system."

The former WB official thinks the spike in the policy rate is appropriate, and it has to be kept at an elevated level until inflation comes down.

Hussain, however, said he was confused about the crawling peg system.

He said the central bank has narrowed the gap between the official exchange rate and the prevailing market rate by setting the dollar rate at Tk 117.

"With this, we have just moved from one exchange rate to another.

"Importers were already paying around Tk 120 per dollar before the crawling peg was introduced. So, the latest move might not be helpful. Rather, it might backfire," he added.

Speaking at a media briefing at the finance ministry, Chris Papageorgiou said the reserves have been declining for a real confluence of external shocks such as the Ukraine war, hike in interest rates globally and higher commodity prices.

The higher prices have trickled down to the economy more quickly than other economies, raising inflation to a decade-high, he said.

The authorities took a bold action -- a package of real reforms to deal with the current situation, he noted.

Papageorgiou said the introduction of a new flexible exchange rate and the elimination of SMART could help create more flexibility.

The IMF official mentioned that for many decades, the country has had a tax-to-GDP ratio of about 10 percent, one of the lowest in the world. "We think that there is room for improvement."

The IMF said it is imperative to prioritise sustainable revenue generation to bolster investments in social welfare and development initiatives.​

 

[Saif]

Market-driven interest rate returns after four years

The central bank took the decision as people have been struggling with the high level of prices for around two years.

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Market-driven interest rate returns after four years

After a gap of four years, the banking sector in Bangladesh has returned to a market-driven interest rate regime at the prescription of the International Monetary Fund (IMF), in order to step up its fight against elevated level of inflation.

The central bank also raised the policy rate by 50 basis points to 8.5 percent, aiming to make money costlier.

The central bank took the decision as people have been struggling with the high level of prices for around two years.

Analysts expect the interest rate in the banking sector to rise in the upcoming days and inflationary pressures to ease.

The move to a market-based lending rate was one of the conditions for the IMF's $4.7 billion loan to Bangladesh, the third tranche of which is expected soon.

Bankers welcomed the decision, opining that the lending rate may rise initially and a market-based rate was necessary to reduce inflationary pressures and make the banking sector healthy.

Selim RF Hussain, chairman of the Association of Bankers Bangladesh (ABB), told The Daily Star that adopting a market-based interest rate was a bold step.

Hussain, also the managing director of BRAC Bank, said when the government interferes in the economy, the market can become unstable.

The new decision will bring governance to the economy, he said.

"The flexible interest rate and the exchange rate will also help reduce capital flight from Bangladesh. This is good news for the economy."

Now, the interest rate will be fixed based on the bank-client relationships and the demand for loans and the supply of loanable funds in the banking sector.

"Inflation will also come down to the expected level due to the hike in the policy rate," Hussain added.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, welcomed the central bank's decision to scrap the rates based on the Six-months Moving Average Rate of Treasury bills, abbreviated as SMART, and opt for a market-based interest rate.

In July last year, the central bank introduced the SMART rate, withdrawing the 9 percent lending rate cap and 6 percent deposit rate cap which it had imposed in April 2020. Under the SMART formula, banks were not allowed to raise the interest rate after a certain point.

Now, the banks can impose the interest rate considering their costs of fund. So, the interest rate will be market-driven. "Bankers always want the market to determine the interest rate," Rahman said.

He thinks the interest rate will not rise significantly after the withdrawal of the SMART rate. Moreover, as the central bank has hiked the policy rate, it will make money costlier.

As both policy changes came simultaneously, the interest rate may rise for a few days but not to a major extent.

Rahman, also a former chairman of the Association of Bankers' Bangladesh, said raising the policy rate was an expected move as the central bank announced a contractionary monetary policy last January to tame inflation.

The policy rate, the rate at which the central bank lends to financial institutions, was the ninth straight spike since the tightening cycle began in May 2022, as inflation showed no signs of cooling.

Stock market analysts also welcomed BB's decisions.

Shahidul Islam, chief executive officer of VIPB Asset Management Company, said macroeconomic stabilisation is a pre-condition for a good stock market.

"The new decisions will be helpful for macroeconomic stabilisation, so it will be helpful for the market in the long-run. The market-based interest rate will make loans available to those who need them."

Subir Kumar Ghose, chief executive officer of Partex Petro Ltd, said it was really tough to instantly predict the impact of the decision.

However, he opined that interest rates would increase initially, which would impact overall business negatively.

Ghose also said it would depend on supply and demand of loans.

He assumed the interest rate may grow to 18 to 20 percent and would be reflected by higher costs of production.

"But ultimately the burden will fall on the shoulders of the consumers as businesses will pass on the rise in costs to consumers."

Regarding the crawling peg exchange rate system, Ghose said it was a good solution to stabilise the exchange rate and appreciated that banks could no longer charge as per their wishes.

According to him, banks had charged higher rates for US dollars than the rate fixed by the government, causing importers to suffer when opening letters of credit.

Humayun Rashid, managing director and CEO of Energypac Power Generation, thinks the interest rate would go up immediately because banks would look to increase the lending rate since they are paying higher interest for deposits.

"The market-based interest rate would definitely increase the cost of doing business. Against this backdrop, investment will slow as businessmen will be discouraged from investing in new projects, which in turn will narrow employment opportunities."

Rashid expressed concerns over the crawling peg, saying although the export sector would benefit, it would increase import costs.

Amirul Haque, managing director of Premier Cement Mill, said the central bank relinquished the control to private banks since the BB will no longer have any say about interest rates.

This system can also lead to all kinds of investment getting stuck as investors who took the initiative to expand or adopt new plans will not implement them due to high interest rates, he added.

"As a result, money will flow to unproductive sectors and economic growth will be hampered greatly."​

 

[Saif]

Forex reserves decline by $133 million in a week

The reserves hit $19.83 billion on May 8

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Forex reserves decline by $133 million in a week
The reserves hit $19.83 billion on May 8

Bangladesh's foreign currency reserves declined by $133 million to $19.83 billion on May 8 in the span of a week, central bank data showed.

The reserves stood at $19.96 billion on April 30. The forex figure is based on the balance of payments and investment position manual (BPM6) of the International Monetary Fund (IMF).

Wednesday's figure means the reserves have stayed at less than $20 billion for nearly a month as inflows have not improved in line with outflows.

Since the reserves are not picking up, the IMF has drastically slashed the Net International Reserves (NIR) requirement for Bangladesh for the fourth tranche of the $4.7 billion loans.

The Washington-based multilateral lender had given the country a target to maintain $20.11 billion for June. But after its 15-day review mission in Dhaka that ended on Wednesday, it has reduced the NIR threshold for the central bank to $14.76 billion.

It came as exports and remittances inflows are not showing much improvement.

The country shipped products worth $3.91 billion last month, down 0.99 percent year-on-year. However, remittance inflow rose 21.31 percent to $2.04 billion thanks to Eid-ul-Fitr as the country's migrant workers typically send more money home ahead of the major religious festival for Muslims.

Because of higher commodity prices driven by the supply chain disruptions caused by the coronavirus pandemic, the Russia-Ukraine War, and the latest Middle East Crisis, the forex reserves of Bangladesh, an import-dependent nation, have been declining since August 2021 from the record level.

According to the IMF manual, gross foreign reserves include gold, cash US dollars, bonds and treasury bills, reserve position in the IMF, and special drawing rights holdings.

The NIR is defined as reserves assets minus reserve liabilities to residents and non-residents, including commitments to sell foreign exchange arising from derivatives and all credit outstanding with the IMF.

Thus, the NIR is usually lower than the gross reserves.​

 

[Saif]

'Evaluate country's debt sustainability to avoid debt-trap'

Country’s debt sustainability needs proper assessment as it has been failing to address repayment issues tarnishing its long-established reputation on payback.Dr Debapriya Bhattacharya said the repayment period for the Rooppur power plant has been awaiting an extension by another two years wh

thefinancialexpress.com.bd

'Evaluate country's debt sustainability to avoid debt-trap'
FE ONLINE REPORT
Published :
May 07, 2024 15:04
Updated :
May 07, 2024 15:06

Dr Debapriya Bhattacharya, the distinguished fellow of the Centre for Policy Dialogue (CPD), addressing 'Moazzem Hossain Commemorative Lecture' on 'Macroeconomic challenge and way forward', organized by Economic Reporters Forum (ERF) at its premises in Dhaka on Tuesday –FE photo

For all latest news, follow The Financial Express Google News channel.
Country's debt sustainability needs proper assessment as it has been failing to address repayment issues tarnishing its long-established reputation on payback.

Dr Debapriya Bhattacharya said the repayment period for the Rooppur power plant has been awaiting an extension by another two years while footing the airlines fuel bills became irregular.

Such incidents of defaulting the loans like Rooppur may appear again as the country may fall into a debt trap by 2026 due to showing inflated economic growth with poor domestic revenue, he said.

"Economic Relations Division (ERD) is designated to assess the debt sustainability but it can be questioned whether it is coming out with real data or compromising it to satisfy politicians," the Distinguished fellow of the Center for Policy Dialogue (CPD) said at 'Moazzem Hossain Commemorative Lecture', on 'Macroeconomic challenge and way forward', organized by Economic Reporters Forum (ERF) at its premises.

It is the second programme honouring the contribution of the late Moazzem Hossain, former editor of the Financial Express, and former ERF President.

Incumbent editor of the FE Shamsul Huq Zahid also attended the programme and spoke on the contribution of Mr Hossain to developing the country's economic reporting area.

ERF President Refayet Ullah Mirdha and General Secretary Abul Kashem also attended the programme.

On recent restrictions in the Bangladesh Bank (BB) for journalists, Dr Bhattacharya said something is fishy in the BB prompting it to impose the ban.

"It seems as if economic journalists' access to information may cause sabotage if transparency is ensured," he added.

Such restrictions in access to data contradict the government's vision to build a smart Bangladesh, he said.​

 

[Saif]

Exporters cheer weaker taka

Owing to a chaotic and volatile exchange rate, local exporters were desperate for the introduction of a floating exchange rate so they could draw more money and be more competitive.

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Exporters cheer weaker taka

In a historic move, the central bank of Bangladesh has depreciated the local currency against the US dollar mainly to make the country more competitive in international trade, a move that exporters and businesses welcomed.

In fact, the taka has been losing ground over the past three years, both during and after the Covid-19 pandemic, as Bangladesh's banking system struggled to supply dollars as per surging demand.

Owing to a chaotic and volatile exchange rate, local exporters were desperate for the introduction of a floating exchange rate so they could draw more money and be more competitive.

The taka stayed firm at Tk 85 per dollar for over a decade, but started weakening amid increasing pressure on the foreign exchange reserves.

The local currency depreciated 28 percent, to Tk 110 per dollar, between January 2022 and April 2024. In informal curb markets, the rate even crossed Tk 120 per dollar

Following the latest depreciation through the crawling peg, which was introduced for the first time in the history of Bangladesh, the taka lost 6.36 percent of its value, falling to Tk 117 per dollar.

Including yesterday's depreciation, the taka has lost 36 percent of its value against the greenback since January 2022.

However, exporters welcomed the decision to introduce the crawling peg, which saw the exchange rate hiked to Tk 117 per dollar from Tk 110, as it will make them more competitive.

It will provide a boost as the government has already reduced incentives on export receipts as the country is going to graduate from least developed country status in 2026.

Under the rules of the World Trade Organisation, developing and developed countries cannot directly provide subsidies on export receipts. But the government can offer benefits indirectly, such as by hiking the exchange rate, providing policy support or offering technological upgradation or skill development funds to make export-oriented sectors more competitive.

"It was necessary for us as the cost of doing business rose significantly due to increasing gas and power tariffs. The government also reduced the cash incentive on export receipts," said SM Mannan Kochi, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

A suffocating situation was created for garment exporters because of the higher cost of doing business and the latest move by the central bank will provide some relief, Kochi said.

But exporters will have to keep in mind that they must negotiate higher prices from international retailers and brands so they are not deprived of the benefits provided by such a decision, the BGMEA chief also said.

Ashraf Ahmed, president of the Dhaka Chamber of Commerce and Industry (DCCI), said it was a proper step towards a market-based exchange rate.

"We expect this move to ease the balance of payment pressure despite its impact on costs. We hope this will precipitate a single exchange rate across the board," the DCCI chief said.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said: "I welcome the move to introduce the crawling peg, which will eventually make us strong in exchange rate of dollar and taka."

However, if the exchange rate for remittances is higher than for exports, there will a problem, he said. Hatem added that if the new exchange rate could be standardised in the banking system, it would be better.

But if the rate varies between Tk 120 and Tk 122 per dollar in case of buying dollars to open letters of credit, then exporters will face difficulties.

Hatem also urged the government to ease business rules and reduce harassment of exporters to facilitate more trade. Reducing harassment would also work as an incentive for businessmen, he added.

Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association, also welcomed the move.

"In fact, I have been talking about introducing the crawling peg for many months as businessmen have been getting less due to the exchange rate," Khokon told The Daily Star over phone.

He added that the government should not interfere with the crawling peg system directly or indirectly.

Bangladesh adopted a floating exchange rate regime in May 2003 as part of a comprehensive medium-term economic programme to promote growth and alleviate poverty, according to the International Monetary Fund.

However, the floating rate was on paper as the central bank officially or unofficially directed the course of the exchange rate.​

 

[Saif]

Will BB steps build up reserves? Not so soon

Bangladesh Bank’s steps to boost the country’s foreign currency reserves will not yield any positive results overnight.

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Will BB steps build up reserves? Not so soon

The Bangladesh Bank headquarters is seen in Dhaka. Photo: Star/File

Bangladesh Bank's steps to boost the country's foreign currency reserves will not yield any positive results overnight.

According to the government and IMF projections, the reserves will not increase until June next year despite the latest measures taken in line with the International Monetary Fund prescriptions.

Bangladesh's net international reserves (NIR) will be between $14 billion and $16 billion till March next year, according to the projections.

In June next year, the NIR might be close to $20 billion. This means the country's gross reserves could be around $25 billion at that time.

The NIR refers to gross reserves (based on the International Monetary Fund method) minus the central bank's forex liabilities and reserves earmarked for quasi-fiscal activities that involve state-owned banks and enterprises.

Speaking at a press briefing in the capital on Wednesday, IMF mission chief Chris Papageorgiou said Bangladesh will need some time to get the expected results from the BB steps.

He said the authorities have now taken "bold actions", a package of reforms.

"So, all of the measures, I think, will create more flexibility, more return. We see Bangladesh slowly coming out of these challenges," he added.

Talking to The Daily Star, Ahsan H Mansur, executive director of the think-tank Policy Research Institute (PRI), said it might take six to nine months to get the expected results from the BB's new measures given that the policy is implemented properly.

In a rare instance, the BB on Wednesday devalued the local currency by Tk 7 to Tk 117, the steepest fall in a day against the dollar. Moreover, the central bank loosened its age-old grip on the taka as it will now follow the crawling peg, a flexible exchange rate system.

The BB also made lending rates fully market-based and raised the overnight repurchase agreement rate, a form of short-term borrowing cost for banks, by 50 basis points to 8.5 percent.

Seeking anonymity, a central bank official said the new system will allow authorised dealers to trade with clients and between themselves at freely negotiated rates.

People will be able to buy and sell foreign currency at a price which reflects the current market supply and demand.

The new crawling peg regime will help rebuild reserves, added the official.

Ahsan H Mansur said the new system's success will depend on how efficiently and successfully the government and the central bank execute it.

"New systems are introduced in this country at different times, but those are not implemented properly," he said.

The latest system has brought about a unified exchange rate, removing the previous distortions. This will slightly incentivise export and remittance which will produce a positive result, he added.

However, it will take time to have a positive impact on the huge deficit in the financial account of the balance of payment because exporters and foreign investors will want to see how efficiently the new system is implemented, he noted.

If the new system stabilises the exchange rate, money will start flowing into the country in the next six to nine months, he further said.

"This means it will take some time for the new policy to produce results."

Finance division and central bank officials said the budget support will increase because of the bold actions.

Officials said these reforms, backed by the development partners, will help Bangladesh reach its full potential under the IMF programme.

On Wednesday, the IMF agreed to provide Bangladesh with $1.15 billion in the third tranche under the $4.7 billion loan programme.

Of the amount, about $932 million will be under the Extended Credit Facility (ECF)/Extended Fund Facility (EFF) and about $220 million under the Resilience and Sustainability Facility (RSF).

Earlier, Bangladesh got $462 billion in the second tranche under the ECF/EFF.

BB officials said the total loan amount will remain the same -- $4.7 billion.

The IMF, however, has agreed to pay an instalment in advance with the third tranche to support the package reform programme.​