The Metropolitan Chamber of Commerce and Industry (MCCI) has urged the central bank to ensure low cost credit to manufacturing and services sectors that are suffering immensely now due to the ongoing political blockades, violence and instability.
The chamber body, in this connection, has suggested slashing of repo and reverse repo rates and fixing deposit rates just above the latest rate of inflation.
It has requested the Bangladesh Bank (BB) to consider the changed circumstances in its monetary policy statement (MPS) for January-June 2015 (the second half or H2 of financial year or FY 2015) in the light of political unrest, structural deficiencies and cautious approach on the part of the banks.
All these factors have, in fact, slowed down the private sector credit growth, the chamber body added.
In a statement issued to the press on Sunday, the MCCI welcomed the various policy measures announced recently by the Bangladesh Bank (BB) in its MPS for H2 of FY15 aiming to keep inflation in check and move to a higher growth path amid the prevailing political unrest.
The rate of inflation, according to the new MPS, will be brought down to 6.5 per cent by June 2015. At the same time, the economy is expected to grow at a respectable 6.5-6.8 per cent during the current fiscal, it noted.
To prop up investment, the MPS, the MMCI said, keeps the private sector credit growth target at 15.5 per cent at the end of FY15, which is substantially higher than the 12.7 per cent level in November 2014.
The statement said: "In regard to the central bank's claim that banks' interest rates have been coming down in line with the decline in inflation, the MCCI wants to point out that inflation has fallen by 5.0 per cent, but banks' lending rate has fallen by just 1.0 per cent since 2011. The existing average lending rate of 12.0-13.0 per cent is bound to dampen investment; BB should encourage the commercial banks to devise ways to reduce their lending rates, which did not come down commensurately with the decline in inflation in the past three years".
"In this regard, MCCI would like to reiterate its earlier proposition that the central bank and the government should immediately set up a functional secondary money market as an alternate source for borrowing money. If this is done, banks and the government will be able to reduce their dependency on the banking system, and on the National Savings Scheme (NSS) as a source of borrowing", the statement noted.
The MCCI appreciated that BB "has revised the lending rate ceiling for agriculture downward from 13.0 per cent to 11.0 per cent but much more needs to be done, particularly at this time when the farmers cannot sell their produces due to ongoing blockades.
The chamber urged the central bank to initiate measures that would make new tranche of agricultural credit available to farmers at the earliest to help them recover from these losses.
"Since agriculture absorbs only a small portion of total bank credit, the central bank should also take appropriate measures to ensure low cost credit to manufacturing and services sectors that are suffering immensely now due to the ongoing political blockades, violence and instability", the statement said.
"To this effect, benchmark repo and reverse repo rates, which have remained unchanged for 18 months, should be slashed. MCCI would like to suggest that deposit interest rates may be kept just above the inflation rate so that depositors do not end up with a negative rate of return. Likewise, the lending rates should be kept just above the inflation rate in order to keep the real interest rate (lending rate minus inflation) positive. In early 2012, the average lending rate in Bangladesh was 13.0 per cent and the inflation rate was 10.0 per cent, making the real interest rate 3.0 per cent. Now, in 2015, the inflation rate is below 7.0 per cent. Hence the lending rate should be no more than 10.0 per cent", it observed.
The chamber commended BB's commitment to support capital market stability. "BB had earlier introduced a number of new investor-friendly regulatory reforms facilitating external transactions of foreign and local businesses including investments in the capital market in H1 of FY15. MCCI believes that such continued reforms will help shore up investor confidence, particularly during this time of general investor pessimism in the capital market", it added.
The statement observed: "It is good to see that BB has pledged to shore up banking governance to clamp down on loan delinquencies and financial fraudulence.
"MCCI also appreciates that the central bank is keen on further consolidating the country's external sector liquidity, and to continue maintaining a comfortable amount of foreign currency reserves to cover up to five to 10 months imports. There are also encouraging projections in the MPS: that the overall export growth in FY15 will be 8.0 percent, import growth 15.0 per cent and remittance growth 12.0 percent, to yield a reasonable balance of payments surplus of US$642 million.
"MCCI believes that an optimal level of foreign exchange reserve is necessary to protect the external value of the Taka and to ensure a healthy growth of imports. At the same time the BB must also help ensure that Bangladesh does not lose competitiveness in exports due to its exchange rate. We appreciate the central bank's appropriate policy stance in this regard and look forward to continued proactive measures in days ahead", the statement concluded.
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MCCI suggests central bank rates slash
FE Report | Published: February 09, 2015 00:00:00 | Updated: November 30, 2026 06:01:00
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