The Bangladesh Bank has revised its monetary policy for the second half of the fiscal year 2019-2020, raising the target of broad money supply by 0.50 percentage points with a view to boosting investment in the private sector, including the capital market.
The central bank also revised upward the government’s bank borrowing target to 37.7 per cent from 24.3 per cent it had projected for the January-June period of FY20 when it announced the annual monetary policy statement in July last year.
Besides, the BB kept its projection of attaining 14.8 per cent private sector credit growth unchanged.
The central bank on Sunday issued a press release on the revised monetary policy statement based on the decisions which were made at its Monetary Policy Committee’s meeting held on January 16.
It increased the target of broad money supply to 13 per cent from 12.5 per cent for January-June of the current fiscal year.
M2 or broad money includes cash and checking deposits along with near money that refers to savings deposits, money market securities and mutual fund and other time deposits.
Supporting the BB move to increase the broad money flow, former Bangladesh Bank governor Salehuddin Ahmed told New Age, ‘It should have been increased earlier and I have suggested for it as well.’
Increased flow of broad money would increase private sector investments, he said.
However, it would not happen on its own, rather the central bank will have to provide support in this regard, Salehuddin said.
The BB move to increase broad money supply came at a time when the country’s financial sector is grappling with liquidity crisis and the capital market is going through turmoil.
It, however, kept the private sector credit growth target unchanged at 14.8 per cent although the rate hit record low of 9.87 per cent in November amid sluggish business situation and soaring government borrowing from banks.
The government borrowing in the first half of the current fiscal year soared by 44.44 per cent, going well over 15.4 per cent projected by the BB.
Although, the central bank projected that the public sector credit growth would grow by 37.7 per cent for the second half, economists said that the projection was impractical as the government continued to be on the borrowing spree.
Policy Research Institute executive director and BRAC Bank chairman Ahsan H Mansur told New Age that both the private sector credit growth and government’s bank borrowing targets set by the central bank were impractical.
Mansur said that the government’s borrowing would increase in the upcoming months of the current fiscal year when the pace of annual development programme implementation would increase.
The government’s bank borrowing may grow by 100 per cent at the end of FY20, he said.
As per the government data for July-December of FY20, around 74 per cent of the government’s ADP is yet to be implemented.
Mansur also said that he did not find any satisfactory answer to the question how the government borrowing would be kept within the projection.
Speaking about the BB’s projection of attaining 14.8 per cent private sector credit growth, Mansur said that it was unrealistic if the first half’s credit growth was considered.
Mansur also differed with the BB’s estimation that the inflation would remain within 5.5 per cent in the second half of FY20.
He said that the inflation might be 6 per cent-6.5 per cent.
The BB also projected that the country’s GDP growth would be around 8.2 per cent in the current fiscal year.
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