New monetary policy evokes mixed response

A number of economists were critical of some major features of the new half-yearly monetary policy statement (MPS), including higher target of government borrowing and lower ceiling of credits to the private sector.      
The Bangladesh Bank (BB) unveiled Saturday the 18th monetary policy statement (MPS) mainly aimed at keeping the annual inflation rate within 6.5 per cent at the end of the fiscal year 2015. The MPS has projected the private-sector-credit growth at 16.5 per cent for the first half of the fiscal.
The analysts have found the credit growth projection for the private sector inappropriate and favoured a higher projection to help spur private investment.
On the other hand, some analysts praised the July-December policy, saying that the MPS is consistent with the country's current economic situation.
Former governor of the Bangladesh Bank Dr. Salehuddin Ahmed said the private-sector-credit target should be at least 17 per cent and the same should come from the domestic sources.
The latest MPS sets the ceiling on private-sector credit at 14 per cent (only domestic sources) but expects it to be 16.5 per cent after inclusion of foreign borrowing by the local corporate entities.
"I am not talking as to whether the target will be achieved or not, but high target hints at 'good signal' to the investors."
Dr Ahmed was critical of the higher borrowing by the government and raised question about its transparency in terms of the expenditure of the borrowed fund.
He viewed that even after the beginning of some mega projects the overall investment in the country would not get a boost.
"I think, after the beginning of some mega projects, investment might grow in some areas or in some sectors, not overall investment…"
The former governor pointed out that the MPS did not mention how to ensure good governance in the country's banking sector.
Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), was also critical of the government's higher borrowing target.
Dr Mansur said the MPS should contain at least 'a note of caution' about the higher bank borrowing by the government.
He pointed out that the MPS did not elaborate on how to heal different weaknesses the banking sector is suffering from, including higher non-performing loans.
However, Dr Mansur said the enhancement of the Export Development Fund (EDF) to US$1.5 billion from $1.2 billion is a quite right decision in the context of export promotion.
He also cited the raise in the single-borrower limit to $15 million from $12 million.
"The decisions in terms of the EDF will help raise competitiveness of the local manufactured products meant for international market," Dr Mansur added.
Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank (WB), observed the MPS was very much consistent with the current state of the economy.
The BB, he appreciates, has rightly set a target of inflation at 6.5 per cent which is 0.5 per cent lower than that of the government target.
"It's good assessment by the central bank."
He noted that stability in the rate of inflation is very much important, considering a large number of limited-and poor- income group in Bangladesh.
The World Bank economist also said there should be details about the reserve-money components.
The BB should include its target for core inflation separately, he said. Central bank cannot do anything about food inflation as it is dependent on the global and regional prices of commodities.
Apart from this, production fall in the domestic sector also helps fuel the food inflation.
"To my mind, the BB should mention its inflation target separately-one for core and the other for food items.
"The central bank is now improving on many key issues and there should be details about the components of the reserve money," Dr Hussain said.
"We actually want to know financial relations between the central bank and the government and central bank and other commercial banks," Dr Hussain said.