MONETARY POLICY FOR JULY-DECEMBER
Lower pvt sector credit growth set eyeing lower GDP growth
The Bangladesh Bank in its new monetary policy statement for July-December of the current fiscal year on Thursday reduced the target of private sector credit growth, projecting a GDP growth of 6.2 per cent for the fiscal year, much below the government target of 7.2 per cent.
The central bank, however, raised the credit growth in the public sector significantly for this term to facilitate the government’s spending ahead of the national elections, BB officials told New Age.
Although the central bank aimed to bring down the inflation to 7 per cent in accordance with the budget for this fiscal year, it said that the target would be challenging given the higher inflation in the neighbouring countries.
BB governor Atiur Rahman unveiled the monetary policy statement at the central bank’s headquarters in the capital terming it a ‘balanced monetary stance’ like the previous monetary programme.
In its new monetary policy, the BB cut the credit growth in the private sector to 15.5 per cent by December 2013 and 16.5 per cent by June 2014 from that of 18.3 per cent in December 2012 and 18.5 per cent in June 2013.
A BB official said the target of credit growth in the private sector had lowered consecutively in the first eleven months of the fiscal year 2012-13 as the credit demand from the businesspeople dropped significantly amid political unrest.
BB data showed that the credit growth in the private sector declined to 11.43 per cent in May 2013 compared with that of 18.40 per cent in the corresponding month a year before.
The BB, however, increased the credit growth in the public sector ahead of the national elections.
The BB raised the credit growth in the public sector to 33.7 per cent by December 2013 and 19.5 per cent by June 2014 from that of 13.5 per cent in December 2012 and 20.80 per cent in June 2013.
The BB official said the central bank had considered the national elections and the existing political unrest in framing the projections of the monetary programme for this fiscal year.
Atiur at the policy unveiling session said the central bank’s current growth outlook for the FY 2013-14 was that output growth was unlikely to deviate significantly from the last ten year’s average of 6.2 per cent.
The growth outlook is based on the current and the projected trends of a number of variables including global growth, exports, investment, imports, remittances and the BB will update its forecasts on a regular basis in the course of the year, he said.
The central bank’s projection is in total contrast to the 7.2 per cent growth target set last month in the national budget for the current fiscal year.
Atiur said, ‘The monetary stance for the first half of the current fiscal year takes the recent economic developments into account and will target a monetary growth path which aims to bring average inflation down to 7 per cent [using the 1995/96 base], while ensuring that credit growth is sufficient to stimulate inclusive economic growth.’
Particularly, the BB aims to contain reserve money growth to 15.5 per cent and broad money growth to 17.2 per cent by December 2013.
The space for private sector credit growth of 15.5 per cent for December 2013 and 16.5 per cent in June 2014 has been kept well in line with economic growth targets and higher than average ‘emerging’ Asian economies, he claimed.
‘Looking ahead to the FY 2013-14, the inflation target announced in the budget is 7 per cent using the 1995/96 base. The risks to the inflation target stem partly from likely wage increases in both the public and private sectors which will further add to the existing aggregate demand pressures,’ Atiur said.
Another risk to food inflation in particular stems from possible supply-side disruptions if prolonged nationwide general strikes take place, recent increases in food inflation in India and risks due to weather related factors affecting agriculture, he said.
The BB governor said, ‘The central bank will continue its programme to stabilise the capital market. The BB has recently taken some measures to stimulate the capital market.’
Asked what measures would be taken to encourage credit growth in the private sector, BB’s senior adviser Allah Malik Kazmi said the opening of letters of credit had maintained an upward trend in the recent months, giving a positive signal to the private sector.
BB deputy governor SK Sur Chowdhury said the central bank had already taken a number of initiatives to stimulate the capital market.
He said, ‘The BB has recently formed a fund for the small-scale investors affected by the stock market crash as per direction from the government. The fund may be activated this month. The central bank will take such type of initiative in the months to come.’
-With New Age input
