BB goes for tight monetary policy to curb inflation
Friday, 13 July 2007
FE Report
The Bangladesh Bank (BB) is likely to further raise both statutory liquidity ratio (SLR) and cash reserve requirement (CRR) of the commercial banks to curb inflationary pressures on economy through tightening monetary policy.
"We will revisit the SLR and CRR of the commercial banks including Islamic ones which have remained unchanged since 2005," the BB Governor Salehuddin Ahmed told reporters Thursday while announcing the half-yearly monetary policy statement for the July-December period in 2007.
Bangladesh Bank will change its policy on interest rates, the central bank chief said, adding that the impact on such policy change might be felt after its implementation.
"The BB may review SLR or CRR of banks including Islamic ones which have remained unchanged since 2005 in view of unfolding price developments," the central bank said in its fourth monetary policy statement.
Sources, however, said a senior official of the central bank has already been assigned to review the overall SLR and CRR position of the banks considering credit flow and other economic factors.
Besides, the central bank planned to increase the interest rates on some short-term monetary tools like treasury bills shortly to mop up excess liquidity from the banking system.
"We may increase the SLR and CRR of the banks if the other monetary tools do not functions in line with the new monetary policy," a BB senior official told the FE.
He also said the central bank wants to keep the consumers' price index (CPI) inflation ranging between 6.5 per cent and 7.0 per cent on annual average basis for the current fiscal.
Currently, the excess liquidity of the scheduled banks stood at Tk 95.17 billion while the Islamic banks hold around Tk 17.00 billion.
On 25 August 2005, the central bank raised the SLR by 2.0 percentage point to 18 per cent from 16 per cent, which came into effect since October 1, 2005.
Besides, the central bank also increased the CRR by 0.5 percentage point to 5.0 per cent from 4.50 per cent for the commercial banks to maintain with the central bank from their total deposits on a bi-weekly basis.
On November 8, 2003 the SLR was revised downward to 16 per cent from 20 per cent to increase lending capacities of the banks.
Currently, Islamic banks maintain only 10 per cent SLR instead of 18 per cent as they can't purchase any bonds and government-approved securities that involve receipt of interests.
Meanwhile, two neighbouring countries -- India and Pakistan -- have already re-fixed their reserve requirements aiming to curb the inflationary pressures on economies.
The Resave Bank of India (RBI), the central bank of India, has already re-fixed the SLR at 25 per cent to restrict the expansion of bank credit.
The State Bank of Pakistan (SBP) also increased the CRR to 7.0 per cent from 5.0 per cent and the SLR to 18 per cent from 15 per cent for the commercial banks Wednesday.
The revised reserve requirements will come into effect from July 22, a Pakistani newspaper reported.
The BB is going to pursue the new policy taking into account the performance of real sector and external sector and also the monetary developments in the recent past.
"Coordination among monetary, fiscal and trade polices is required to help curb rising inflationary pressures and achieving 7.0 per cent growth of gross domestic product (GDP) in fiscal 2007-08," the BB governor noted.
He also said the central bank is committed to ensuring flow of credit in the productive sectors like agriculture, small and medium enterprises and housing sector.
"The private sector will get special attention for continued growth that contribute largely to our GDP," Ahmed said, adding that the private sector will take necessary measures to increase their productivity.
The BB governor also said the commercial banks have already assured the central bank to provide more than Tk 10.00 billion as agricultural credit during the next 12 months.
Apart from the monetary policy, the central bank emphasised on adhering to fiscal discipline strictly, reducing the spread between interest rates on deposits and interest rates on lending and adopting heterodox polices to improve productions and marketing of the agricultural products.
The Bangladesh Bank (BB) is likely to further raise both statutory liquidity ratio (SLR) and cash reserve requirement (CRR) of the commercial banks to curb inflationary pressures on economy through tightening monetary policy.
"We will revisit the SLR and CRR of the commercial banks including Islamic ones which have remained unchanged since 2005," the BB Governor Salehuddin Ahmed told reporters Thursday while announcing the half-yearly monetary policy statement for the July-December period in 2007.
Bangladesh Bank will change its policy on interest rates, the central bank chief said, adding that the impact on such policy change might be felt after its implementation.
"The BB may review SLR or CRR of banks including Islamic ones which have remained unchanged since 2005 in view of unfolding price developments," the central bank said in its fourth monetary policy statement.
Sources, however, said a senior official of the central bank has already been assigned to review the overall SLR and CRR position of the banks considering credit flow and other economic factors.
Besides, the central bank planned to increase the interest rates on some short-term monetary tools like treasury bills shortly to mop up excess liquidity from the banking system.
"We may increase the SLR and CRR of the banks if the other monetary tools do not functions in line with the new monetary policy," a BB senior official told the FE.
He also said the central bank wants to keep the consumers' price index (CPI) inflation ranging between 6.5 per cent and 7.0 per cent on annual average basis for the current fiscal.
Currently, the excess liquidity of the scheduled banks stood at Tk 95.17 billion while the Islamic banks hold around Tk 17.00 billion.
On 25 August 2005, the central bank raised the SLR by 2.0 percentage point to 18 per cent from 16 per cent, which came into effect since October 1, 2005.
Besides, the central bank also increased the CRR by 0.5 percentage point to 5.0 per cent from 4.50 per cent for the commercial banks to maintain with the central bank from their total deposits on a bi-weekly basis.
On November 8, 2003 the SLR was revised downward to 16 per cent from 20 per cent to increase lending capacities of the banks.
Currently, Islamic banks maintain only 10 per cent SLR instead of 18 per cent as they can't purchase any bonds and government-approved securities that involve receipt of interests.
Meanwhile, two neighbouring countries -- India and Pakistan -- have already re-fixed their reserve requirements aiming to curb the inflationary pressures on economies.
The Resave Bank of India (RBI), the central bank of India, has already re-fixed the SLR at 25 per cent to restrict the expansion of bank credit.
The State Bank of Pakistan (SBP) also increased the CRR to 7.0 per cent from 5.0 per cent and the SLR to 18 per cent from 15 per cent for the commercial banks Wednesday.
The revised reserve requirements will come into effect from July 22, a Pakistani newspaper reported.
The BB is going to pursue the new policy taking into account the performance of real sector and external sector and also the monetary developments in the recent past.
"Coordination among monetary, fiscal and trade polices is required to help curb rising inflationary pressures and achieving 7.0 per cent growth of gross domestic product (GDP) in fiscal 2007-08," the BB governor noted.
He also said the central bank is committed to ensuring flow of credit in the productive sectors like agriculture, small and medium enterprises and housing sector.
"The private sector will get special attention for continued growth that contribute largely to our GDP," Ahmed said, adding that the private sector will take necessary measures to increase their productivity.
The BB governor also said the commercial banks have already assured the central bank to provide more than Tk 10.00 billion as agricultural credit during the next 12 months.
Apart from the monetary policy, the central bank emphasised on adhering to fiscal discipline strictly, reducing the spread between interest rates on deposits and interest rates on lending and adopting heterodox polices to improve productions and marketing of the agricultural products.