Bids Seminar On Monetary Policy
Foreign loan influx in pvt sector to affect financial sector: economists
The central bank’s move to encourage foreign loans for the private sector under the monetary policy for July-December 2014 could affect the country’s financial sector, economists at a discussion meeting on Thursday observed. At the seminar, organised by Bangladesh Institute of Development Studies, they said the monetary policy was highly focused on tackling inflation which will again reduce private sector credit growth when the investment is sluggish.
Bangladesh Bank officials, however, said allowing foreign loans will help to reduce the local interest rate and will also give competitive advantage to the local businessmen.
‘BB should not encourage foreign loans in private sector rather it should take initiative to lower interest rate in local market,’ former BB governor Salehuddin Ahmed said at the meeting held at the BIDS auditorium.
He said that the local banks’ profitability could face a dent if the businessmen continue taking loans from foreign sources.
He said the monetary policy was highly focused on tackling inflation which hinders the private sector credit flow.
Former finance adviser to the caretaker government Mirza Azizul Islam said that in case of foreign loans to private sector, the BB should be very careful.
‘Only the export-oriented businesses could get facilities like this and the central bank should monitor those very carefully,’ he said.
He said the BB can take contractionary monetary policy, but there is huge idle liquidity in the commercial banks.
‘Even having such excess liquidity the interest rates are not lowering. The monetary policy should also address the issue,’ he said.
He also said that inflation target was not met because of the current depressed situation in the country caused by political uncertainty.
World Bank’s lead economist Zahid Hussain said that monetary policy is not a foolproof tool to tackle all the issues.
‘It has its own limitation. But the private sector credit growth is a must for economic growth,’ he said.
Centre for Policy Dialogue executive director Mustafizur Rahman said that the monetary policy should have put more emphasise on private sector credit growth.
‘There is a sluggish investment scenario and huge scams in the financial sector also made the market situation stagnant,’ he said.
He said that although BB said that allowing new banks in the market would increase competition and lower interest rate, ‘but we have not seen any such sign yet.’
He also said non-performing loans are becoming serious concern for the banks.
BIDS research director Zaid Bakht said that the BB move to increase the cash reserve ratio just before announcing the monetary policy was not a good idea.
‘It will not help. The banks may still go for reverse repo if the private sector dose not becomes vibrant,’ he said.
He also said after the Hallmark scandal, banks are very sceptical about inland bills purchase which is creating another stagnancy.
BIDS senior research fellow Monzur Hossain in his keynote presentation said that BB move to formulate monetary policy focusing on inflation could harm the private credit growth.
‘The previous monetary policy was also aimed to check inflation but that only got little success as food inflation, which is the major portion of the overall inflation, is still high,’ he said.
He also said the broad money declined but inflation remained the same which indicated that the policy objective was unfulfilled.
‘The private sector credit growth will be affected if such policy continues,’ he said.
BB governor Atiur Rahman, however, said allowing foreign loans in private sector will help the financial sector.
‘If our businessmen get loans at lower rate it will help them to become more competitive in the international market. We are now only
allowing foreign loans in export or import subsidy sector,’ he said.
He said that tackling inflation will solve the problem in other areas.
‘We are hoping that as the local banks have excess liquidity they will go for lending in SME sector and rural
market which will make the real economy more vibrant,’ he said.
He also said that BB will take tough action against the involved banks related to Hallmark scams which are creating problems in IBP.
-With New Age input
