Growth in broad money supply to be held back to contain inflation
Tuesday, 24 July 2007
Shakhawat Hossain
A meeting of the coordination council decided Monday to bring down the growth rate of broad money (M2) to 15 per cent from existing 19.21 per cent aiming to contain inflation below 7.0 per cent, official source said.
Chaired by Finance and Planning Adviser Mirza Azizul Islam, the coordination council took the decision against the backdrop of inflationary pressure on the economy. The inflation has been hovering just over 7.0 per cent during the past couple of months.
The meeting while focusing on different economic indicators found that the existing growth rate of broad money supply was high due to access liquidity in the banking channel, sources added.
It saw bringing down the growth of broad money supply by at least 5.0 percentage points as the most suitable option to put the inflationary pressure under control, said a senior Ministry of Finance (MoF) official.
"Following such decision, the government will mop up excess liquidity from the banking channel," he said.
The meeting viewed that withdrawal of excess liquidity would not hurt the private sector credit flow and hamper investment in the country.
The excess money in the banks will rather fuel inflation, the official added.
Attended by the Bangladesh Bank governor and secretaries under the MOF, the meeting also decided to raise the interest rate and maintain the growth of the gross domestic product (GDP) at 7.0 per cent.
The decisions of the coordination council meeting reflect the newly adopted monetary policy of the central bank, which aims at containing the inflation.
Although the monetary policy has drawn criticism from different quarters, the central bank is determined to maintain the contractionary monetary policy until next December.
The coordination council meeting has also taken decision on timely disbursement of funds for agriculture.
The meeting also enquired about the release of different government funds and its likely impact on money supply. It suggested looking into the matter seriously.
Meanwhile, UNB adds: A high-powered meeting Monday decided to keep aside the productive sector from possible shock of the current monetary policy on the interest rates on bank loans.
"The lending rate for productive sector will not increase," a senior official who attended the meeting said.
According to the policy stance, the rates -- repo, reverse repo and treasury bonds - as well as commercial banks' mandatory reserve requirements (SLR and CRR) with the central bank would be increased.
Trade bodies and analysts feared that the "tight monetary policy stance" would push up the interest rates, affecting private sector lending.
A meeting of the coordination council decided Monday to bring down the growth rate of broad money (M2) to 15 per cent from existing 19.21 per cent aiming to contain inflation below 7.0 per cent, official source said.
Chaired by Finance and Planning Adviser Mirza Azizul Islam, the coordination council took the decision against the backdrop of inflationary pressure on the economy. The inflation has been hovering just over 7.0 per cent during the past couple of months.
The meeting while focusing on different economic indicators found that the existing growth rate of broad money supply was high due to access liquidity in the banking channel, sources added.
It saw bringing down the growth of broad money supply by at least 5.0 percentage points as the most suitable option to put the inflationary pressure under control, said a senior Ministry of Finance (MoF) official.
"Following such decision, the government will mop up excess liquidity from the banking channel," he said.
The meeting viewed that withdrawal of excess liquidity would not hurt the private sector credit flow and hamper investment in the country.
The excess money in the banks will rather fuel inflation, the official added.
Attended by the Bangladesh Bank governor and secretaries under the MOF, the meeting also decided to raise the interest rate and maintain the growth of the gross domestic product (GDP) at 7.0 per cent.
The decisions of the coordination council meeting reflect the newly adopted monetary policy of the central bank, which aims at containing the inflation.
Although the monetary policy has drawn criticism from different quarters, the central bank is determined to maintain the contractionary monetary policy until next December.
The coordination council meeting has also taken decision on timely disbursement of funds for agriculture.
The meeting also enquired about the release of different government funds and its likely impact on money supply. It suggested looking into the matter seriously.
Meanwhile, UNB adds: A high-powered meeting Monday decided to keep aside the productive sector from possible shock of the current monetary policy on the interest rates on bank loans.
"The lending rate for productive sector will not increase," a senior official who attended the meeting said.
According to the policy stance, the rates -- repo, reverse repo and treasury bonds - as well as commercial banks' mandatory reserve requirements (SLR and CRR) with the central bank would be increased.
Trade bodies and analysts feared that the "tight monetary policy stance" would push up the interest rates, affecting private sector lending.