Market-based interest rating and free float of currencies are likely soon as the central bank's governor dropped a broad hint Sunday about such major changes on Bangladesh's money market.

"We are very close to market-based interest rate…We will be very shortly moving into market-based interest rate," said the Bangladesh Bank Governor, Abdur Rouf Talukder.

The governor also said they would soon move to market-determined exchange rate as well.

The observations came in a session titled "Fiscal and Monetary Policies in the Evolving Economic Order (Risks, Vulnerabilities and Solutions)"on the first day of a two-day meet on 'First Development Studies International Conference' being held in a city hotel under joint auspices of the Department of Development Studies of Dhaka University and Dainik Bonik Barta.

He said there would be no more restrictions on interest rate and banks would be at liberty to fix the interest rate on a supply-demand basis.

The benchmark SMART was an interim arrangement from regulator-dictated interest rate to market- based interest.

The governor said they are working on introducing crawling peg for fixing exchange rate through facing some headwinds.

"But again it is an interim arrangement before going fully market-based exchange rate," he told his audience, apparently in the wake of reforms being set off following an IMF loan-appraisal mission's recommendations. He said the central is not buying government bond at all now.

He also differs on opinion that injecting money creates money instantly.

Three former central bank governors and two former finance secretaries also spoke at the event.

They said the best macroeconomic stability outcome would be achieved if there is a balance and coordination between fiscal and monetary policies.

They feel both the policies require modification and reform alongside rapidly changing global scenario.

There is no alternative to increasing resource mobilization by raising the tax-GDP ratio, the experts said.

But, they said, ratio of direct tax should be increased in the total revenue earning as indirect tax increases inequality in society and hurts the poor and lower-income people most.

Former governor Saleh Uddin Ahmed said, "There must be coordination between major two macroeconomic policies- fiscal and monetary policies."

He said the central bank has to go beyond IMF prescription and stereotyped policy recommendations.

The former governor said the monetary policy "should not be too contractionary to tame only inflation" which hurts small and medium-income groups most.

He urged the central to utilize autonomy it has been given by the country's constitution to come to grips with the situation.

"The central will perform better if it can avoid pressures from groups of chambers, bankers and politicians," he told the meet.

Former governor Fazle Kabir said coordination of fiscal policy and monetary policy brings macroeconomic stability.

He cited providing subsidised loan during Covid to businesses and bearing part of interest by the government as a perfect example of coordination between the two policies.

"There might be temporary pain for longer-term macroeconomic stability," he said.

Former finance secretary Dr Mohammad Tareque said monetary policy has to be set up keeping focus on maintenance value of Taka, financial stability and ensuring governance.

He said the depth of the economy which is measured by M2/GDP is being reduced in Bangladesh after 2014 and it hasn't been improving since.

He said M2/GDP ratio of Bangladesh is still far behind from the threshold of lower-middle-income country.

Another former finance secretary, Mohammad Muslim Chowdhury, said direct tax is one-third of total revenue income.

"It increases inequity and injustice to society."

Former governor Dr Atitur Rahman moderated the discussion. He said fiscal policy and monetary policy need to reflect the rapidly changing global scenario.

"Our fiscal and monetary policies need to reflect global uncertainty and its spillover effect into our country," he said.