The team from the International Monetary Fund with whom the conditions for Bangladesh's prospective $4.5 billion loan will be negotiated is now in Dhaka. They will be in the country for a fortnight. According to the early news reports, Bangladesh Bank officials who met with the delegation for some early exchanges have assured the International Monetary Fund (IMF) that it will soon lift the existing lending rate cap and leave the country's foreign exchange market to a free-floating exchange rate system.

The IMF team already held several meetings with the Bangladesh Bank high-ups including Governor Abdur Rouf Talukder and emphasised withdrawing the lending rate cap, and ensuring the market-determined exchange rate. Other representatives from the central bank who met with the IMF delegation included deputy governors Ahmed Jamal and Kazi Saidur Rahman, and officials of the Forex Reserve and Treasury Management and Accounts and Budgeting departments.

In these early exchanges, the IMF is said to have stressed financial sector reforms and restoring discipline in the banking sector and raised questions about the lending rate cap, and different exchange rates of the US dollar. This is in reference of course to how on April 1, 2020, the central bank set a maximum interest rate of 9% on all bank loans and a maximum of 6% on deposits. Perhaps opportunely, the Bangladesh Bank also published a study this week, that said switching back to a market-based mechanism could be an appropriate solution for effective monetary policy, checking inflationary pressure and addressing current credit demand and supply mismatch. "Following the global trend of historically high inflation rate and recent price hike of fuel oils on the local market, further tightening of monetary policy may be required in the coming months and without moving or removal of interest rate caps, any policy rate hiking seemingly may not be effective to transmit the signal to the real sector of the economy," it said in the report.

The study titled 'Impact assessment of interest rate caps and potential policy options: Bangladesh perspective' suggested the lifting of the interest rate cap on lending and leaving it to the market mechanism. "In order to promote a market-based development in the financial sector and modernise the existing monetary aggregate-based policy framework, removal of broad-based interest rate cap will be essential at least in the medium to longer term," it also said.

This will come as reassurance to many economists who have been insisting on lifting the lending rate cap in particular, for a number of months now. They have also expressed their reservations about the mechanism Bangladesh Bank chose to determine the market-based rate of the US dollar recently, in a deal with the Association of Bankers, Bangladesh and BAFEDA, the association of foreign exchange dealers. Economists have expressed their reservations about this on two fronts. That in the guise of switching to a market-based rate, we have handed over this determination to a cartel in the form of ABB and BAFEDA. And secondly, that market-based rate for the dollar would require a market-based interest rate as well. So it seems with the IMF team now in Dhaka, our central bankers are getting ready to strike not just one, or two, but three birds with one stone.