BB announces monetary policy: Lending rate cut stressed

The Bangladesh Bank yesterday announced a “pro-active accommodative” monetary policy for next six months to spur investment, sustain growth, emphasising lending rate cut and keeping provision to supply fund from foreign currency reserve.
“The prime goal of this monetary policy is to assist a sustainable and productive growth by keeping inflation at a tolerable level,” central bank governor Dr Atiur Rahman told a press briefing announcing the new policy for July-December period at bank’s head office.
Atiur said, the central bank would be tough to compel the commercial banks to ease credit conditions to help spur investment and sustain economic growth in the present context of global economic meltdown.
He said, the policy aimed at helping the government to achieve an economic growth ranging between 5.5 and 6.0 per cent and keep inflation within 6.5 per cent.
The governor said, the central bank stance would come as a continuation of its recent policy shift from advisory instructions to mandatory one amid the commercial banks’ unwillingness to reduce the lending rates, charges and fees, particularly for the priority sectors.
The policy yields on treasury securities and deposit rates declined sharply in the money market awash with liquidity, but with no corresponding decline in lending rates or service charges and fees.
It said Bangladesh Bank had to address this situation with mandatory rather than advisory instructions to banks about the levels of lending rates, charges and fees.
The central bank recently made it mandatory for the commercial banks to charge a maximum lending rate of 13 per cent on particular sector while advising them to reduce the charges and fees, but they received poor response from the banks so far.
“The trend of this change (policy shift) will continue,” said Governor Dr Atiur Rahman, adding that the central bank would keep close watch on the market behaviour of banks and would “appropriately redress the downward stickiness of lending interest rates by instilling competitive loan pricing practices in the market.”
Replying to a question on spending from the forex reserve, the governor said: “The policy stance is to give a signal that the good projects will not face any investment problem.” He also assured that financing would not be a problem “if the wheel of PPP starts moving.”
Asked about the possibility of crowding out the private sector from bank borrowing, the Governor said that the private sector had not yet complained that they were not getting loans and assured that fund for further demands for investment could be provided.
Ziaul Hassan Siddiqui supplemented that the policy provides for adequate financing to the private sector as the Bangladesh Bank considered that the private sector would cover the 0.5 percent GDP growth to help achieve 6.0 percent.
The target of private sector credit at 16.5 per cent is absolutely reasonable considering the targets of GDP and inflation, he said.

Courtesy of The New Nation