The central bank unveiled Saturday an 'investment-friendly' and 'cautious' monetary policy aiming to stabilise inflation and bring back momentum in growth.
"In a nut shell, we can say the new monetary policy is investment-friendly and cautious in nature" said Bangladesh Bank (BB) Governor Dr Atiur Rahman while unveiling it.
The BB announced the Monetary Policy Statement (MPS) for the July-December period, the first half of the fiscal year 2015 (H1FY15), at a programme held in the Jahangir Alam Conference Room at the central bank.
The policy will ensure that the credit growth is sufficient to stimulate inclusive economic growth, according to the policy statement.
The BB governor said the H1FY15 monetary policy had no 'surprise' but continuation of its previous version.
He said the new monetary policy would ensure financial stability.
He also said: "The new monetary policy will help stabilise both money and capital market and contain inflation to the expected level to alleviate poverty and grow the rate of employment."
The BB wants to bring the average inflation down to 6.5 per cent at the end of the fiscal year 2015, although the government target of average inflation for the same period is 6.0 per cent.
However, the BB aims to contain reserve money growth to 15.5 per cent and broad money growth (M2) 16.0 per cent by December 2014.
The ceiling for private sector credit growth has been kept at 16.5 per cent (including foreign borrowing by local corporates) as like as that for the January-June period. But the ceiling could not be achieved.
The current growth in the private sector credit is 15.7 per cent including foreign borrowing (up to May last).
The BB said the private sector credit ceiling was in line with output growth targets and was sufficient to accommodate any substantial rise in investment over the next six months ending in December 2014.
Out of 16.5 per cent ceiling for private sector credit growth, 14.0 per cent borrowing is expected from local sources by December 2014.
"The BB views these figures as indicative ceilings - banks continue to be advised to lend only to creditworthy clients for productive purposes," the MPS said.
"At the same time these ceilings are flexible and the monetary programme can be recalibrated should economic growth pick up faster than projected," the MPS said.
It said the projected pick-up in economic growth in FY15 should absorb some of the current excess liquidity, though BB stands ready to use its range of instruments to further limit excess liquidity as and when required.
It said fiscal-monetary coordination would continue and the track record of containing government borrowing well within budgetary limits was expected to continue, further limiting any crowding-out effect on private sector borrowing.
In order to promote exports, the BB recently increased the size of the Export Development Fund from US$ 1.2 billion to $ 1.5 billion, the MPS said.
"With a view to attracting foreign investment, the BB has relaxed restrictions on foreign investor borrowing from the local market and their ability to access working capital financing from their parent company," the MPS said.
The BB governor said foreign companies operating in Bangladesh would be able to bring dollars from their parent companies abroad at the zero rate of interest.
The MPS said effective transmission of monetary policy required strengthening credit and debt markets and it would remain a key focus for the BB.
The MPS said clear progress in implementing automation benchmarks in the state-owned commercial banks was a pre-condition for sanctioning the release of additional recapitalisation funds.
It said the BB would continue to collaborate with BSEC (Bangladesh Securities and Exchange Commission) through regular coordination meetings regarding capital market stability and development issues.
"The cumulative effect of these and other reforms will strengthen the financial sector," the MPS said.
This monetary policy stance also aims to preserve the country's external sector stability.
The BB will continue to support a market-based exchange rate while seeking to avoid excessive foreign exchange rate volatility.
The Taka-US dollar nominal exchange rate remained stable in H2FY14 and the BB's interventions in the foreign exchange market had significantly limited the loss of external competitiveness by stemming any significant appreciation of the Taka, the MPS said.
It said debt markets were becoming active with several recent auctions over-subscribed and a sharp fall in devolvement from 26.6 per cent in H1FY14 to 5.3 per cent in H2FY14.
The BB will be supportive of the capital market through on-going deeper regulatory coordination and policy support with the BSEC.
Moreover in order to fill the gaps in the financial landscape, the BB has begun a review of rules governing private equity along with the BSEC, the MPS said.
While replying to a volley of questions, the BB governor expressed the hope that investments would increase in the months ahead.
"There are many mega infrastructure projects, these projects will help grow the investment," Dr Atiur said.
He however said BB's monitoring would be strengthened to ensure quality loan.
The BB governor said: "We have given emphasis on broadening SME (small and medium enterprises) loans and increase investments in agriculture"
He also the BB had laid its due emphasis on the agriculture sector which is helping bring down the food inflation.
The governor said the foreign exchange reserve might fall after growth in the investment as import of capital machinery would rise.
He said the decline in remittances had not adversely affected external stability in FY14.
He said the remittance inflow was downward until December last. "It has been growing since January."
Dr Rahman said the BB efforts to maintain stability in the nominal exchange rate would continue to encourage expatriates to send their hard-earned money home.
The BB governor said money market remained very stable in the current year.
"We earlier saw the call money surge to its peak before Eid, but now the call money rate remains cool," the governor said.
Allah Malik Kazemi, change management advisor of the central bank, said the BB had been encouraging cheaper foreign loans to make the exportable goods competitive.
He said many goods produced in the country for the international market were not competitive because of the high domestic rate of interest.
He also said the cheap foreign loan was also creating a downward pressure in terms of interest rate for the local banks.
Replying to a question, BB deputy governor SK Sur Chowdhury said the BB was looking into different allegations involving loan disbursements in the port city of Chittagong.
There are allegations that some big companies or groups in Chittagong have 'defaulted' on a substantial amount of loans. "We are verifying the allegations," Mr Sur said while replying to a question in relation to the loans disbursed in Chittagong.
Mr Sur said the bank loans in Chittagong would be classified.
He said necessary legal actions against the officials involved with the loan disbursement in Chittagong would be taken. "We are alert about the issue," Mr Sur said.
Mr Sur said the payment system development in the country was helping investments and reducing sufferings of the people.
Dr Hassan Zaman, BB chief economist, said the central bank for the first time had the separate private credit ceilings for domestic and foreign sources.
He also said the BB could not announce the MPS immediately after the end of its earlier one mainly due to a delay in getting the assessment data.
Abu Hena Mohd. Razee Hassan, deputy governor of the central bank, made the introductory speech at the programme.
Sufficient credit growth targeted to spur economy
FE Report | Published: July 27, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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