Bangladesh Bank has recently announced the Monetary Policy Statement (MPS) for the second half of the financial Year 2013-2014 with the aim of containing inflation and maintaining the growth momentum. Monetary policy is generally defined as the process by which the monetary authority (ideally central bank) of a country controls the supply of money, targeting a rate of interest for the purpose of promoting economic growth and stability. The official objective of the monetary policy is to maintain stable growth and low unemployment. Monetary policy is either expansionary or contractionary where the expansionary policy increases the total money supply in the economy more rapidly than usual. On the contrary contractionary policy shrinks the money supply than usual with the aim to control the inflation.        Â
The current monetary policy targets to contain inflation and maintain growth momentum. Actually inflation should not be the main objective of the monetary policy of a third world country like Bangladesh. As the country is in a growing mode, some inflation may be there, but the authority must keep inflation within a limited range. On the growing mode, the economy demands higher money circulation. If money can roll out, it must create demand in the market which ultimately induces the manufacturing activities. So keeping the inflation rate within 7.0 per cent is not the vital issue.   Â
In the MPS Bangladesh Bank said the half-yearly monetary policy, straddling from January to July 2014, is designed to support the government's policies and programmes in pursuit of faster inclusive economic growth and poverty reduction. Obviously the Bangladesh Bank will help the government policy, but it should be visible in their activities. What we have seen is that the private sector credit growth remains the same as the previous MPS (first half of 2013-14). According to the MPS, the ceiling for private sector credit growth of 16.5 per cent has been kept well in line with economic growth targets. Credit growth, including foreign borrowing, was at the rate of 13.6 per cent and this may induce the central bank to keep the same rate as in the previous MPS. Except the foreign borrowing the private sector credit growth stood only 11.7 per cent. This may not help grow the economy in an aggressive pace. Congenial atmosphere and political stability should be ensured to achieve the set growth target. Though the economy deserves more feeding by money circulation, the Bangladesh Bank sets target just to keep the economy to growing as usual. On the other hand, the growth rate for government borrowing has been fixed at 22.9 per cent. Government borrowing may shrink the private borrowing. But if the government uses the money in productive sector, it may create positive impact to the economy. Moreover, in the MPS the Bangladesh Bank governor also revealed that the reserves increased to $18 billion, which is really a good sign for Bangladesh economy. However, expert opinion is that the Bangladesh Bank should find the way to utilise the reserves properly rather to keep it as comfort. We hope we shall find the impact in the next budget as well as next the MPS.
 The writer is Head of Small                 Business, Eastern Bank Ltd.                      anwarfaruq@yahoo.com
Monetary policy 2014: BB should find better ways to utilise the reserves
Anwar Faruq Talukder | Published: February 20, 2014 00:00:00 | Updated: November 30, 2024 06:01:00
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