Economists have suggested that the monetary policy statement for the fiscal year 2020-2021 must aim at reviving the coronavirus pandemic-hit economy by ensuring effective implementation of the government-announced stimulus packages that would boost the private sector.
The banks have to issue credit to the private sector in addition to the packages so that the businesses, hit hard by the pandemic-induced economic stagnation, can resume their business in full swing, the economists said.
To do so, the monetary policy for FY21 should be expansionary but checking inflation especially the food inflation would be vital, former Bangladesh Bank governor Salehuddin Ahmed and Policy Research Institute executive director Ahsan H Mansur told New Age.
The BB has already invited opinions from the stakeholders for the formulation of MPS for the entire fiscal year.
The MPS for FY21 would be announced once a BB governor is appointed.
The post fell vacant as the tenure of Fazle Kabir as BB governor expired recently.
Salehuddin said, ‘Conventionally, the focus of monetary policy is supporting the government’s GDP growth target and keeping it within a certain level.’
‘However, the case is a bit different this year because of the coronavirus outbreak and the main challenge of the monetary policy would be boosting the economy,’ he said.
The economic activities in the country remained almost halted for around two months spanning from March 29 to May 30 when the country was on a shutdown.
Although the government withdrew the countrywide shutdown on May 31, the business and normal activities of people are yet to be restored, leading many of the businesses to suspend operations and job loss of different segment of the population.
As a result, the economic growth of the country would plunge to 3.8 per cent in FY20 while the government’s budgetary projection was 8.2 per cent growth.
The central bank missed its projection for 14.8 per cent growth in the private sector credit due mainly to the outbreak of coronavirus that killed almost 6 lakh people across the globe.
In May this year, the country’s private sector credit growth came down to as low as 8.86 per cent.
With the cases of coronavirus infection reaching 1.86 lakh as of Monday in Bangladesh and people cautious to get exposed and lead a normal life, it would be a tough ask for the central bank to revive the economy.
To boost the economy and to create employment for the unemployed, the monetary policy for FY21 must be expansionary, said Salehuddin.
To get benefit out of the expansionary monetary policy, the policy must be implemented instead of keeping it on paper, he said.
To create employment, the micro, small and medium sector in addition to the large industries must get additional focus, he said.
The banks, however, have been focusing especially on issuing credit to the large industries even though the rate of defaulted loans is high in the sector.
Besides setting higher reserve money and broad money growth target, the central bank will have to monitor on regular basis how the banks are implementing those things, the former BB governor said.
He also mentioned that the central bank should formulate the MPS for six months instead of one year as it required fine-tuning with the changed economic situation.
About the exchange rate, Salehuddin said that there was scope for the devaluation of the taka against the US dollar as it would give competitive edge to the country’s exporters.
The BB’s monetary policy for FY20 largely failed due to the government heavy borrowing from the banking sector that reached Tk 85,231 crore, squeezing the borrowing scope for the private sector.
Suspecting that the revenue shortfall would be Tk 80,000 crore in FY21, Ahsan said that it would be difficult for the government to lower its borrowing from the banking system considering its budget size and hefty revenue target.
The monetary policy for FY21 must be expansionary and the growth of reserve money would be higher than broad money, said Ahsan, also the BRAC Bank chairperson.
Besides, ensuring benefit of the expansionary policy to the right people would be a challenge, otherwise the goal of the policy cannot be achieved, he said. Checking inflation would be vital as the BB would have to formulate expansionary policy, he said.
However, the government will have to pay due attention to containing inflation especially food inflation, he said.
Apart from the issuance of stimulus packages, credit to the other sectors should be ensured for improving the private sector credit growth situation.
He, however, was sceptical about how the banking sector would be able to provide adequate credit to the private sector when the government itself would borrow hefty Tk 84,980 crore from the banking sector in FY21 and the non-performing loans in the banking sectors are very likely to rise in the coming days.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Miscellany