The measures prescribed in the monetary policy statement for January-June of the current fiscal year keep unabated the major macroeconomic challenges including declining trend in GDP growth, inflationary pressure and imbalance in external sectors, said Unnayan Onneshan, a local think-tank.
‘The MPS announced by Bangladesh Bank on Thursday has further compromised the achievement of targeted growth of 7.2 per cent in the backdrop of slump in investment,’ the organisation observed in its current issue of the Bangladesh Economic Update published on Saturday.
The think-tank said that Bangladesh Bank had taken contractionary monetary policy when the economy of the country was confronted with major challenges such as declined rate of GDP, slump in investment, negative growth in import, failure in achieving export target, continuation of inflationary pressure and faux-pas in fiscal management, particularly arising out of rental power plants.
Analysing the relationship between inflation and growth, the organisation doubted about the efficacy of contractionary monetary policy and noted that a reduction in inflation in recent months, though the rate was still high, could not by any means be attributed to contraction in money supply through squeezing credit and imports.
‘Decline in inflation has largely been due to drop in food prices in the international market and higher domestic agricultural production,’ the research organisation said adding that the non-food inflation in the country still remained high.
So, the claim of relative reduction in average inflation owing to the past contractionary monetary policy stance does not come with evidence and remains ideological and prescriptive, said the report.
The UO said that the successive MPSs had restrained the productive activities by way of hindering the private sector in their effort to access to credit and declining the import of raw materials, intermediate goods and capital machinery.
The monetary policy has been pursued to satisfy the conditions articulated in the memorandum of economic and financial policies under the three reform programmes agreed with the International Monetary Fund, the organisation said.
‘Though the MPS takes pride in maintaining stability of external balance, the decline in import of intermediate goods, industrial raw materials and capital machinery suggests adverse implications on the growth prospects of the economy while the failure in meeting export targets also pause a challenge in attainment of the target in terms of growth in GDP.’
Referring to 0.5 per cent reduction in the policy rate and 0.5 per cent increased projection of credit to the private sector, Unnayan Onneshan said that such move might ease the credit availability at a lower price, but would not pull investment to the required level for achieving targeted GDP growth.
The UO said the implementation of the current monetary policy might face some major macroeconomic challenges.
-With New Age input
