Bangladesh Bank on Tuesday announced a ‘cautious’ monetary policy for the first half (July-December) of the fiscal year of 2018-2019 without any major changes, eyeing a balance between controlling inflation and achieving targeted economic growth ahead of the national elections, expected to be held by the end of this year.
The BB disclosed the monetary policy statement at a press briefing held at the central bank headquarters in Dhaka where Bangladesh Bank governor Fazle Kabir, its banking reform adviser SK Sur Chowdhury, deputy governor Abu Hena Mohammad Razi Hasan and chief economist Faisal Ahmed were present, among others.
The BB in the MPS has projected to increase domestic credit growth at the rate of 15.9 per cent in FY19, while the target for January-June of FY18 was 15.8 per cent but the central bank managed to attain 14.6 per cent growth in the period.
The private sector credit growth target has been kept unchanged at 16.8 per cent for the first half of FY19 in line with the target for the January-June period of FY18. The actual growth, however, was 16.95 per cent in January-June of FY18.
Besides, the public sector credit growth has been projected to grow by 8.6 per cent against the central bank’s target of 8.3 per cent for the second half of FY18. The public sector credit growth was 2.5 per cent negative in the second half of FY18.
BB officials told New Age that the central bank did not go for any experiment in the monetary policy for H1 considering that the national elections would be held at the end of the period.
They said that the public sector credit target was raised as the government would go for spending for development activities ahead of the elections.
In line with the previous monetary policy, the latest one would be cautious as well as supportive of economic growth along with containing inflation, Fazle Kabir said.
The private sector would get adequate space for loans under 15.9 per cent domestic growth target due to low demand for loans from the government, he said.
To keep the balance of payment within a reasonable level, bringing remittance and export proceeds through the legal channel would be vital along with focus on bringing foreign direct and portfolio investments, the BB governor said.
He also suggested reducing excessive dependency on foreign loans for the implementation of infrastructure and mega projects instead of local and foreign equity investments would be vital to keep the balance of payment situation stable.
The government, in the national budget for the fiscal year 2018-2019, has targeted to attain 7.8 per cent economic growth keeping inflation within 5.6 per cent.
The government in the first half of the year failed to keep inflation within the target in FY18.
The government’s target was to keep inflation within 5.5 per cent in the immediately past fiscal year, while the actual inflation was 5.78 per cent.
Kabir, however, said, ‘Although we missed the inflation target in the fiscal year, the inflation in the country was lower than the inflation increase rates across the world.’
Faisal Ahmed said, ‘We hope the inflation rate rise would slow down in the days ahead due to possibility of lower food import and better production of food grains this year.’
‘On the other hand, to keep the exchange rate stable, the central bank has taken mixed approach including selling dollar to cool down the price of greenbacks in the local market,’ he said.
Thirdly, broad money has been projected prudently at 12 per cent for the fiscal year that would also help contain inflation as well, he said.
Asked whether the Bangladesh Association of Banks had legitimacy of making decision on bringing interest rates down to single digit, SK Sur Chowdhury said, ‘It’s a baseless question in the age of market economy as a grocer has the right to decide at what prices he would sell or buy products at his shop.’
‘The central bank has just started monitoring the process just after their [BAB] announcement along with conditions of not interrupting the credit flow or quality of credit,’ he said.
Replying to a question whether there could be any interruption in the capital market due to the implementation of single digit interest rate, the central bank governor said, ‘There is adequate liquidity in the market and there is no mismatch right now while the inter-bank money lending rate is still very low. Both the factors are very much favourable for the capital market.’
He also called for a number of reforms for the sustainable economic growth of the country.
He suggested reduction of interest rate spread by bringing bad loans figure down, rationalisation of difference between the interest rate of savings certificate and treasury bond and creating overall situation favourable for keeping inflation under control.
Policy Research Institute of Bangladesh executive director Ahsan H Mansur told New Age that the policy was appropriately tight to support the economic growth as well as to contain the inflation within the government’s target.
Although the policy is bit tight, businesses need not to be worried about it as they would get sufficient credit within the existing credit flow target set by the central bank, he said.
He also informed that the country’s present private sector credit growth target was much higher than that in India, Pakistan, Sri Lanka, Vietnam and other countries in this region.
Considering the balance of payment of the country, keeping monetary policy a bid tight is good for the existing economic state of the country, he said.
He also mentioned the central bank rightly called the government for a market-led national savings certificate pricing and the government should respond to the call by leaving the interest rate on the market.