Bangladesh Bank has lowered private sector credit growth target to 16.20 per cent, which has maintained an upward trend in recent months, in the monetary policy statement for July-December of this year with a view to decreasing the money supply in the market.
While unveiling the MPS on Wednesday, the central bank estimated that the country would achieve 7.40 per cent GDP (gross domestic product) growth in FY 2017-18 while inflation would remain at 5.50 per cent through implementing the credit supply to the private and public sectors.
BB governor Fazle Kabir said that the private sector credit growth stood at 16 per cent and the public sector credit growth at a negative of 16.2 per cent in May year-on-year against the target of 16.50 per cent and 12.10 per cent by June 2017.
The BB has set the private sector credit target at 16.20 per cent by December 2017 and 16.30 per cent by June 2018.
The BB unveiled the latest monetary policy statement at its headquarters in the capital.
BB governor Fazle Kabir chaired the unveiling session of the statement while its deputy governors and executive directors were present.
Kabir said that credit growth to the public sector decreased significantly in recent months due to a large amount of government borrowing from the national savings tools avoiding the banking sector.
Such borrowing from the savings tools usually put a lower impact on inflation than that of borrowing from the banks, he said.
The BB in its monetary policy statement has set the domestic sector credit growth at 14.40 per cent by December 2017 and 15.80 per cent by June 2018.
The central bank has set the growth of broad money supply at 12.90 per cent by December 2017 and 13.90 per cent by June 2018.
The governor said that the central bank would face two probable risks to implement its monetary policy this fiscal year which are – a continuous large investment in national savings certificates and bond, and downward trend in inward remittances.
‘The government will have to bear ‘excess interest liabilities’ due to the high interest rate on the savings tools. The interest rate on the tools does not match the other rates prevailing in the market which is hindering to develop the country’s bond market’, he said.
The high interest rate on the savings tools has created an impediment to promote a proper transmission channel to implement the monetary policy, Kabir said.
The interest rate on the saving tools should be adjusted to the market rate, he pointed out.
In reply to a question, the BB governor said that the interest rate on the savings tools might be set considering the interest rate on the long-term Treasury Bond.
‘The dwindling inflow of remittance is another risk of implementing the monetary policy. The gulf countries and Untied States have recently strengthened their anti money-laundering and combating financing of terrorism related rules that plunged the expatriate Bangladeshis into a difficult situation to repatriate their money home’, he said.
The NRBs are now facing problem to send their money through the legal channels due to excessive implementation of the AML and CFT related policies of those countries, he said.
The BB is discussing with Egmont Group and Asia Pacific Group to resolve the issue, he said.
The downward trend in the inflow of remittance and export growth has also created a deficit in the current account balance from the surplus position, the BB governor said.
The exchange rate of Taka against the foreign currencies is now stable due to an active central bank’s monetary programme, he said.
The commercial banks are maintaining an interest rate of around 5 percentage points through decreasing the interest rate on deposit products which has discouraged people to keep their money in the banks, he said.
The central bank has been putting pressure on the banks to decrease their operating cost and the provisioning related expenditure to protect the interest of the depositors, Kabir said.
The staggered new VAT act will not create any obstruction to implement the monetary policy if 19 per cent growth of the revenue collection in FY17 continued this year.
‘The food inflation is still maintaining an increased trend due to the flash flood in Haor belt. But, the inflation will remain under control as the consumer price index in neighboring India has declined below two per cent while the prices of essential commodities and petroleum products have been maintaining a stable situation since the starting period of this year’, Kabir said.
Replying to a query whether the large amount of defaulted loans would create any problem to implement the monetary policy, BB deputy governor SK Sur Chowdhury said that the central bank has seriously asked the banks to recover their non-performing loans.
In response to another question whether the central bank would reschedule the defaulted loans holding the businesspeople who earlier got the restructured facility, Sur said that the central bank will take action against them in line with its existing policy.
Former BB governor Salehuddin Ahmed told New Age on Wednesday that the central bank had taken a ‘cautious monetary policy’ to contain the inflationary pressure.
The central bank should have increased the private sector credit growth to make the industrial sector vibrant, he said.
‘The BB may decrease the private sector credit growth to keep a space for the government so that it would be able borrow from the banks ahead of national election’, he said.
Former caretaker government adviser Mirza Azizul Islam, however, termed the monetary policy as ‘accommodative’ since the central bank has kept emphasis both on inflation and GDP growth while drafting the policy.
He said the private sector had little appetite to take loans from the banks against the backdrop of dull business.
The large amount of defaulted loans is another problem to execute the monetary policy, according to Mirza Aziz.
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