Bankers warn of lending cuts if SLR rates hiked
Saturday, 14 July 2007
Bankers Friday warned of reduced lending capacity of banks if the central bank increases the rates on reserves or statutory liquidity ratios (SLRs), reports bdnews24.com.
The move may see banks raise interest rates, resulting in the decline of credit flow to the private sector and affecting investment.
"The lending capacity of banks will be reduced if the central bank raises the SLRs. But the increase in SLRs will help bring down money supply and dampen inflationary expectations," said Aminur Rahman, managing director of state-run Sonali Bank, the country's largest bank.
Bangladesh Bank (BB) Thursday took a tight monetary policy stance for the July -December period of the fiscal 2007-08.
It hinted at an increase in the present rate of statutory liquidity ratio (SLR) and cash reserve ratios (CRR).
Since 2005, banks have to maintain a total of 18 per cent (SLR 13 per cent and CRR 5.0 per cent) as reserves with the Bangladesh Bank.
BB Governor Salehuddin Ahmed in unveiling the plan said money supply in the market has increased.
Total surplus liquidity now stands at Tk 95.17 billion.
According to the central bank, yearly growth of money supply, a key economic indicator to forecast inflation, stood at 18.2 per cent, far exceeding the target of 14.7 per cent until June.
A managing director of private bank, speaking on condition of anonymity, said reduction in the loan-worthy funds due to increase in SLR and CRR will encourage banks to raise the interest rates on the lending.
"I think there will be no major immediate knock-on effect. Banks now have surplus funds due to low investment demand for credits," said AH Tawfique Ahmed, former deputy governor of Bangladesh Bank.
But M Asaduzzaman, research director at the Bangladesh Institute of Development Studies, differs with the central bank's restrained monetary stance.
"Inflation here is not demand-driven; rather it is driven by supply. Inflation cannot be controlled by keeping supply side issues unaddressed," he said.
He also said the tight monetary policy will affect the liquidity of the banks and more worryingly, reduce credit flow to the private sector.
"It will affect the economy in the longer term," he said.
Referring to the upcoming Ramadan, Asaduzzaman said the central bank should now start facilitating opening of letters of credits (LCs) to make easy the import of essential commodities to keep the prices stable.
The move may see banks raise interest rates, resulting in the decline of credit flow to the private sector and affecting investment.
"The lending capacity of banks will be reduced if the central bank raises the SLRs. But the increase in SLRs will help bring down money supply and dampen inflationary expectations," said Aminur Rahman, managing director of state-run Sonali Bank, the country's largest bank.
Bangladesh Bank (BB) Thursday took a tight monetary policy stance for the July -December period of the fiscal 2007-08.
It hinted at an increase in the present rate of statutory liquidity ratio (SLR) and cash reserve ratios (CRR).
Since 2005, banks have to maintain a total of 18 per cent (SLR 13 per cent and CRR 5.0 per cent) as reserves with the Bangladesh Bank.
BB Governor Salehuddin Ahmed in unveiling the plan said money supply in the market has increased.
Total surplus liquidity now stands at Tk 95.17 billion.
According to the central bank, yearly growth of money supply, a key economic indicator to forecast inflation, stood at 18.2 per cent, far exceeding the target of 14.7 per cent until June.
A managing director of private bank, speaking on condition of anonymity, said reduction in the loan-worthy funds due to increase in SLR and CRR will encourage banks to raise the interest rates on the lending.
"I think there will be no major immediate knock-on effect. Banks now have surplus funds due to low investment demand for credits," said AH Tawfique Ahmed, former deputy governor of Bangladesh Bank.
But M Asaduzzaman, research director at the Bangladesh Institute of Development Studies, differs with the central bank's restrained monetary stance.
"Inflation here is not demand-driven; rather it is driven by supply. Inflation cannot be controlled by keeping supply side issues unaddressed," he said.
He also said the tight monetary policy will affect the liquidity of the banks and more worryingly, reduce credit flow to the private sector.
"It will affect the economy in the longer term," he said.
Referring to the upcoming Ramadan, Asaduzzaman said the central bank should now start facilitating opening of letters of credits (LCs) to make easy the import of essential commodities to keep the prices stable.