BB won't tighten monetary policy further

FE Team | Published: September 18, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam
The Bangladesh Bank (BB) has formally informed the International Monetary Fund (IMF) that it will not tighten its monetary policy further aiming to spur economic activities in the country, which has been affected by recent floods.
This was communicated by the BB Governor Salehuddin Ahmed to the visiting IMF mission at a wrap-up meeting, held in the central bank Monday, official sources said.
At the meeting, the IMF predicted that the inflation rate was likely to reach 9.0 per cent on an annual average basis by the end of this fiscal and economic growth might be hampered slightly due to the floods.
The Washington-based multilateral funding agency has forecast the vital indicators of the economy against the backdrop of floods and price hike of commodities in local and global markets.
Finance ministry forecasts a 7.0 per cent growth of the gross domestic product (GDP) for fiscal 2007-08.
"Industry and service sectors are expected to continue the robust performance in FY08. Following some government measures, growth in agriculture is expected to be higher than the previous year. Overall real GDP growth is projected to be 7.0 per cent in FY08," the BB said in its fourth monetary policy, released on July 12 last.
"The central bank no more pursues a tightened monetary policy. Rather, we are considering easing the policy to achieve the economic growth target for the current fiscal," a BB senior official told the FE.
The central bank is not interested to pursue the cautious monetary policy further due to the floods that may hamper the country's economic growth, he explained.
"The cautious monetary policy may help curb inflationary pressures on the economy, but it will not be useful for achieving the growth target in the aftermath of floods," the BB official observed.
The inflation rate moved up to 7.49 per cent in July last from 7.20 per cent of the previous month on the annual average basis, according to the Bangladesh Bureau of Statistics (BBS) data.
The country's inflation led by consumers' price, however, crossed double digit and stood at 10.10 per cent on the point-to-point basis in July last from 9.20 per cent in June 2007 because of raising prices of food items.
"We are not tightening the monetary policy further as per their (IMF) suggestionâ€¦ What they are saying is not important, we'll take our own decision," the central bank governor told reporters after the meeting.
He also said the central bank has made it clear to the IMF delegation that rising inflation is obviously a challenge to the country, but at the same time the question of economic growth is also a matter of concern.
The central bank is not tightening its monetary policy, but it is trying to increase investment in the productive sectors through utilising the excess liquidity in the banking system, Salehuddin said, stressing the need for private sector-led development and employment generation.
On Sunday last, the central bank advised the commercial banks to expedite lending to agriculture, small and medium enterprises (SME) and housing sectors to facilitate the ongoing post-flood rehabilitation programmes across the country.
Excess liquidity of the scheduled banks stood at Tk 142.79 billion at the end of June last against Tk 95.91 billion of the corresponding period of the previous year, according to the BB's statistics.
At the same meeting, the IMF mission suggested developing secondary bond market to create a new window for investments.
The IMF delegation, led by its Adviser for Asia Pacific Department Thomas Rumbough, will conclude its two-week mission in Bangladesh today (Tuesday) through holding a press conference.
The IMF mission has reviewed the country's most recent macroeconomic situation, including the impact of the ongoing reform programmes the present government is pursuing.