Zahid Hussain, a former lead economist of the World Bank's Dhaka office, termed as the most significant step the abolition of the SMART system among the three changes brought today by the central bank.

This is because the reference lending rate stood in the way of moving to a regime based on interest-targeting from monetary targeting, he said.

"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."

Today, the central bank said banks will announce sector-based interest rates and the interest rates will vary by 1 percentage point depending on the credit risks of clients.

Whether the interest rate is fixed or variable has to be cited in the loan sanction letter. In the case of the floating rate, it should cite the number of times the lending rate could be increased and the range of the spike.

"This is a transparent credit guideline and it will be helpful in allocating credits," Hussain said.

The former World Bank 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 felt confused about the crawling peg exchange rate system because he could not find the band.

He argued by setting the exchange rate at Tk 117 per USD, the gap between the official exchange rate and the market rate has been narrowed.

"However, by citing a single rate, we have just moved from one exchange rate to another exchange rate."

Owing to a lack of a stated band, the market will not get rid of the volatility, he said.

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