Bangladesh Bank has again pursued a contractionary approach in its latest monetary policy which will hamper the private sector credit growth, said Unnayan Onneshan on Saturday.
In its January issue of monthly economic update, the local think-tank said that the central bank took such decision to please the International Monetary Fund without considering its adverse impact on the economy.
‘It seems paradoxical for the central bank of the country to pursue consecutive contractionary monetary policies merely to satisfy the IMF conditions without considering its adverse impact on the economy,’ said the UO.
The monetary policies declared by Bangladesh Bank in recent times, however, failed to bring the expected results in investment and fund flows, it said.
The disbursement of industrial term loan stood at Tk 8,880.79 crore in the first quarter of the current FY 2013-14, the lowest among the last five quarters, whereas it was Tk 9,720.3 crore in the same period of the previous financial year.
‘Despite repeatedly failing to achieve the private sector credit growth, the target of credit in the private sector in the current monetary policy has been set at 16.5 per cent for June 2014. This target is 1.0 percentage points higher than the target of 15.5 per cent in previous one,’ said the UO.
It said the recent declining trend in the private sector credit growth, which has actually been causing the growth of the economy to decline in the last three years in a row, can be restrained through a harmonisation of fiscal and monetary policies.
The rate of growth of actual disbursement of credit to the private sector was 10.18 per cent in July-September, 2013-14, representing a 5.32-percentage point gap over the same period of the previous fiscal year.
The UO also observed that the slow demand for investment had been reflected in the credit deposit ratio.
‘The overall credit-deposit ratio in the banking sector decreased to 70.80 per cent in December 2013 from 71.91 per cent in November 2013. The credit-deposit ratio was 76.59 per cent in December 2012 and 80.33 per cent June 2012,’ it said.
It said the increasing rate of non-performing loans indicated weak surveillance system of Bangladesh Bank.
‘The gross NPL increased to 12.8 per cent at the end of first quarter of the FY 2013-2014 from 11.9 per cent at the end of last quarter of the FY 2012-13,’ it said.
If the government falls short of revenue collection target, it will have to resort to increasing borrowing from the bank and thus this may crowd out private investment as the total tax revenue collection decreased by Tk 528.82 crore in November, the UO said.
Under the five-year government plan, the annual GDP growth was projected at 7.6 per cent in FY 2013-14. But the projection has been revised and set at 7.2 per cent in the current fiscal year.
‘The BB is consecutively taking contractionary monetary policy which restrains the credit growth in the country. The policy depresses investment demand and contracts the possibilities of expansion of the economy,’ it said.
The UO predicted that the real GDP growth in the FY 2013-14 might decline to 5.65 per cent.
-With New Age input
