A policy gives direction to objectives to be achieved. The Monetary Policy Statement (MPS), announced by the Bangladesh Bank (BB) is such an instrument that guides one to plan one's business for the next six months. However, the aim of the recently-unveiled MPS is to support growth as before. But if one looks at the goals of the 2015-16 budget, one may see some ambiguities because the national budget projected GDP growth at 7.0 per cent but to achieve this growth, the projected domestic credit growth at 16.30 per cent seems inadequate.
On the other hand, private credit growth has also been projected lower than that of the previous MPS. It is now lower at 15.00 per cent from 15.50 per cent. The new target is 0.5 percentage points lower from that of the previous monetary policy, but 1.4 percentage points higher from the actual achievement. The actual private sector credit growth was 13.6 per cent. However, the BB has to bring back fair administration in the banking sector which still reflects the weakness of financial regulations.
In the MPS, the central bank seeks heightened supervisory attention to financial sector efficiency through inclusive channeling of financing flows to productive undertakings, in terms of credit discipline, risk management, corporate governance and accountability. The most-talked-about financial scams still remain unresolved. Here, the BB may play a vital role.
On the other hand, huge amount of the classified loans jeopardise stability of the financial sector, but bankers do not see any hope in the near future due to lengthiness of the recovery process. They expect strong commitment and support from the government where they also want to see the BB as a catalyst.
On the eve of announcing the monetary policy, the Reserve Bank of India (RBI) assessed the global growth. It said growth in the United States is likely to be weak in the first quarter of the calendar year 2015, partly because of US dollar appreciation but it is expected to strengthen. The Euro area has started showing modest improvement, supported by lower crude prices and depreciation of the euro as well as easing financial and credit conditions following the commencement of quantitative easing.
With the waning of the impact of the consumption tax increase, growth turned positive in Japan in Q4 of 2014 and consumer confidence and exports picked up. Growth continues to be slow in China amid financial fragilities and macroeconomic imbalances. Global growth is likely to firm up through 2015 and 2016, supported by stronger recovery in the advanced economies (AEs) and soft energy prices. In line with the above trend, the BB has also taken an accommodative monetary stance, which seems pragmatic.
But the socio-political regime in Bangladesh is not similar as it is in the US and the European countries. Hence, the policy here needs to accommodate other issues. But these issues are beyond the BB's control. Apart from so many challenges, the BB has brought down the 12-month average inflation from 6.5 per cent to 6.4 per cent. This is a remarkable success. The projected inflation at 6.2 per cent in the new MPS is likely to be easily achieved. Apart from the continuous support, the central bank is going to introduce two new support funds for fuelling growth in the manufacturing sector. The first is a US$ 300 million WB-funded medium-to-longer lending window in foreign exchange for project investment in manufacturing units and the second is a BB-funded US$ 200 million window for refinancing against medium-term lending in foreign exchange to export-oriented manufacturing units in textiles, apparels and leather sectors specifically for 'greening,' i.e., for transition to environmentally sustainable output processes and practices. To ensure the use of loans, there should be an investment-friendly congenial environment vis-a-vis adequate utilities like gas and electricity.
The writer is a banker
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