Bangladesh’s interim government is set to establish a banking commission as part of a broader reform initiative aimed at stabilizing the country’s troubled financial sector.
The move comes in response to growing concerns over high default loans and weak governance, which have plagued the banking industry and threatened the nation’s overall economic stability.
Economists have long demanded the formation of a banking commission, which they view as essential for salvaging a sector that serves as the economy’s lifeline.
The interim government, led by Nobel laureate and microcredit pioneer Dr. Muhammad Yunus, plans to publish a comprehensive roadmap for streamlining the financial sector within the first 100 days of taking office. This roadmap will outline the steps necessary to bring about sustainable reforms and restore confidence in the banking system.
A consensus on these reform measures was reached during a meeting on Sunday between Chief Adviser Dr. Muhammad Yunus and the newly appointed governor of Bangladesh Bank, Dr. Ahsan H. Mansur.
According to a statement from the Chief Adviser’s office, Dr. Yunus and Dr. Mansur discussed the reeling banking system in detail, leading to an agreement on establishing the banking commission and other key reforms.
The commission is expected to focus on improving governance, reducing the prevalence of default loans, and ensuring the financial sector’s long-term stability.
The commission will take measures to address the rapidly depleting foreign exchange reserves. As part of these efforts, the band of the crawling peg system, which controls fluctuations in the exchange rate, will be expanded from 1.0 to 2.5 percentage points.
The crawling peg system, which currently sets the exchange rate at Tk 117 per US dollar, allows for controlled fluctuations within a predefined range. The expansion of the band is intended to provide greater flexibility in the exchange rate, gradually moving away from administered rates and allowing market forces to play a more significant role in determining the currency’s value.
The decision to revise the crawling peg band comes just over three months after Bangladesh Bank introduced the mechanism as part of its strategy to stabilize the foreign exchange market.
At the same time, the office of the Chief Adviser has called for patience as the government implements measures to combat inflation, which reached 11.66 percent in July 2024, the highest level in 13 years. The sharp price rise has severely impacted consumers, pushing many basic goods and services beyond their reach.
The meeting between Dr. Yunus and Dr. Mansur also concluded with an agreement to maintain the contractionary monetary policy stance in the coming months. This approach is intended to curb inflation by restricting the growth of the money supply and reducing demand-side pressures in the economy.
Since the change in government following the July-August uprising, prices have risen slightly, partly due to the efforts of rebel students who have monitored the market. However, the interim government acknowledges that more needs to be done to bring inflation under control and ensure that the benefits of the new measures are felt across the economy.
