At times of recession, it is all too tempting to axe jobs or go for pay cuts for self-preservation.

If all companies think this way, then it puts the economic locomotive that would pull the nation out of the crisis grind to a halt, and in fact, give rise to a chicken and egg situation.

It has a fierce reverse-hit to the industrial production as workers usually buy the majority of products from the market since they outnumber the other segments in society.

The demand for products declines due to the purchasing power of workers when they lose jobs or saw a salary cut.

Factory owners are finally forced to squeeze the production when goods are stuck in the market that contracts their profit further.

German philosopher Karl Marx depicted the matter in his essay titled "Wage, Labour and Capital" in 1849.

The ongoing financial recession brought on by the coronavirus pandemic has also created the same consequence for the economy.

Bangladesh has never faced such an economic fallout, meaning the central bank in a tight spot as it draws up the monetary policy statement (MPS) for fiscal 2020-21.

The MPS is scheduled to be unveiled in the last week of July.

"We are in a difficult situation due to the twists and turns of the pandemic," said a central bank official.

Most likely, the Bangladesh Bank will take on an expansionary monetary policy stance that the other nations have already adopted, he said.

The new MPS should give all-out effort to boost the dwindling demand, which has been hit hard by the financial meltdown.

The government has set a GDP growth target of 8.2 per cent and an inflationary target of 5.4 per cent for this fiscal year.

The central bank will try to achieve both the targets by implementing the new monetary policy, the official said.

Ensuring the target of the private sector credit growth is highly important for the next fiscal year as it will become a driving force in generating jobs and demand.

The credit growth stood at 8.86 per cent in May, which is much lower than the target of 14.8 per cent for fiscal 2019-20.

Although the central bank has yet to release the data of the credit growth for June, the existing trend has given an indication that the BB is far away from the target.

The central bank will not set a target for the private sector credit growth that is lower than in the just-concluded fiscal year, in order to give a boost to the confidence of businesspeople.

"Setting private sector credit growth will not create anything. Rather, the central bank should give attention to implementing the stimulus packages properly to revive the economy," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

The BB will have to inject a large amount of reserve money (RM), or high-powered money, into the financial market to address the ongoing crisis, he said.

The RM is the base level for money supply and it is also the high-powered component of the money supply. The broad money, which is multiple of RM, depends on the volume of the RM as well.

Both the government and the central bank have announced a number of stimulus packages involving more than Tk 103,117 crore, which is 3.7 per cent of the country's gross domestic product, to help industries, exporters, farmers and SMEs ride out the crisis.

The majority of stimulus packages will be implemented by the central bank.

"This has added extra pressure for the central bank and banks as the government has taken little fiscal measures to mitigate the recession," said Mansur, a former senior official of the International Monetary Fund.

In addition, the government has set a borrowing target of Tk 84,980 crore from the banking source for the current fiscal year.

The government should borrow more from the central bank to give a room to the private sector, Mansur said.

The central bank had fixed 12 per cent RM target and 13 per cent broad money for fiscal 2019-20. Both the targets may be widened to a large extent for this fiscal year.

Inflation will not increase alarmingly in the days to come in the wake of the demand fall. But the food inflation may go up as the ongoing floods have already washed out many paddy fields, Mansur said.

"The price of the staple is maintaining an upward trend. So, the government should immediately take an initiative to import one million to two million tonnes of rice in order to control inflation."

There is uncertainty about when the global economy will make a turnaround, so the central bank should focus on the local economy.

The industries dedicated to manufacturing goods for the local market should be given importance. The SME sector will play a crucial role in boosting the economy where a large number of workers are employed.

If SMEs get back its tempo, the economy will be able to enjoy its momentum.

But Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said lenders would not feel encouraged to give out loans to the SME sector at 9 per cent.

Banks will make little profit against their SME lending as the operational cost is high, he said.

The central bank should rethink about the interest rate cap on all lending products as operational cost and risk vary based on the characteristics of different sectors, he said.

Hussain also criticised the government, saying it had almost completed all the tasks of the central bank while unveiling the budget for fiscal 2020-21.

The targets on inflation, GDP and credit to the public sector are usually set by the government during the budget sessions.

But this time, it also unveiled a credit growth target for the private sector, which is highly unusual, he said.

As per the medium-term macroeconomic policy statement of the government, the credit growth in the private sector was set at 16.7 per cent.

"If all works are done by the finance division, then the central bank will have nothing to do," Hussain said.

The BB may not follow the target set by the finance division, said a central banker requesting anonymity to speak candidly on the matter.