The central bank sees the near term outlook for the economy positive despite adverse price developments in the international markets and less growth prospects of the global economy in 2008.
"This positive outlook, however, is underpinned by several factors, such as supportive macroeconomic polices, steady growth in public and private investments, effective management of gas, electricity, and other infrastructural deficiencies, and implementation of prudent institutional and structural reforms," the Bangladesh Bank (BB) said in its Monetary Policy Review, released Thursday.
The Review provides analysis of major developments in real and monetary sectors of the Bangladesh economy covering the first three quarters, ending in March last, of the fiscal year 2007-08 (FY08).
"With increasingly more emphasis and reliance on the private sector for investment and growth, one of the priorities that the financial sector policies need to focus on strengthening the required debt market infrastructure that can create a vibrant secondary debt market in Bangladesh," the review recommended.
The policies need also to develop a class of institutional investors capable of providing funds with relatively long term tenures. "This will generate better returns for household savings and wider choices for institutional investors," it noted.
The Review also pointed out that the use of short term instruments relative to longer term ones was more effective for the BB in controlling the liquidity situation in the economy as the bond or bill market is yet to mature in the country.
In addition to monetary policy adjustments, the Review underscored the importance of several other elements in achieving the current economic priorities like maintaining fiscal discipline, rationalising the spread between deposit and lending rates, adopting effective policies to increase real sector production and improve marketing chains and introducing international prudential norms for banks and financial institutions to bring consistency and accountability and ensure grater financial inclusion.
The Review also found that the policy response of the central bank so far had been appropriate and in line with its declared monetary policy stance.
Based on demand and supply side assessments of the economy, the Review projected that the Gross Domestic Product (GDP) growth for FY08 would lie in the range between 6.0 per cent and 6.2 per cent.
"While agriculture sector is likely to grow between 3.3 per cent, the growth rate of the industry sector is projected to lie in the ranging of 7.3 per cent to 7.5 per cent in FY08, which is lower than the sector's growth rate of the previous two years. The service sector is likely to grow between 6.4 per cent and 6.6 per cent in FY08," the BB estimated.
