Central banks around the world have been forced to use all the tools at their disposal to fight the impact of the coronavirus. But few could trump the novelty of Bangladesh Bank’s decision to cut a reference rate that had been unchanged for 17 years.
The reduction to the bank rate, from 5% to 4%, came alongside a series of moves by the central bank, led by governor Fazle Kabir. Bangladesh Bank also cut the repo and reverse repo rates, as well as the reserve requirement ratio, the amount of cash banks need to hold with the central bank.
This wide range of rate reductions was clearly the crucial way the central bank tried to influence the economy, but it was certainly not the only method. In March, Bangladesh Bank launched a bond-buying programme — although it was coy about the size. It also announced a six-month debt moratorium on loan repayments.
Bangladesh’s government, perhaps doubting the efficacy of working from home, declared a prolonged public holiday between March 26 and April 25, sharply decreasing economic activity in the country. It has since lifted a nationwide lockdown, although some parts of the country are still restricted.
The full economic impact of the coronavirus remains to be seen, but since the country’s fiscal year ends on June 30, it may have been able to spread the damage across two reporting periods. The economy grew 5.24% in the most recent fiscal year, according to official data.
Bangladesh is suffering from an insufficient fiscal response; the government’s spending package was worth about 3.7% of GDP — and just 1% was direct stimulus, according to StanChart. But Bangladesh Bank has clearly helped to cushion the blow.