The Bangladesh Bank announced Wednesday its six-monthly monetary policy aiming at squeezing money supply to unproductive sectors and discouraging speculative usage of money to reduce the credit growth in the private sector to 18 per cent by June 30, 2012 from the present 25.5 per cent.
BB governor Atiur Rahman announced what he termed an ‘accommodative monetary policy’ for the first six months of the current fiscal year in a press briefing at the BB conference room in the capital.
By squeezing money supply to unproductive and speculative sectors, the central bank plans to bring down the inflation over the current fiscal year to 7.5 per cent as targeted by the government, said BB officials.
The central bank, however, says, achieving the projected decline in domestic inflation to 7.5 per cent over FY2011-2012 is ‘subject to moderation in global commodity price trends, limiting of demand pressures from excessive liquidity expansion, and stable benign domestic environment with no major supply side disruption’.
According to the central bank’s policy statement, domestic credit growth at rates well over 25 per cent year-on-year prevailing in FY2011 clearly was out of line with the modest 13.42 per cent nominal GDP growth of the economy estimated by the Bangladesh Bureau of Statistics.
Atiur termed the new policy ‘restrained and pragmatic’.
The BB announces its monetary policy every six month and this policy will be effective for the July-December period of the current fiscal year.
Allah Malik Kazemi, senior adviser to the BB, said investment and economic activities had paced up substantially in recent times, after a couple of years of post-global economic meltdown, and it deepened the pressure on liquidity in the country’s banking sector.
He said, ‘At the same time, the value of taka is declining and there is a “pressure’ on liquidity; and the BB has taken a number of steps to mop up the excess liquidity and restore normalcy in the liquidity situation.’
The BB policy statement said in this regard that the ‘declining capital account inflows built up substantial stress on liquidity in taka and foreign exchange markets.’
BB deputy governor Nazrul Huda, Ziaul Hasan Siddiqui, Murshid Kuli Khan, and other senior officials were present in the briefing.
Kazemi said, ‘Discouraging the speculative usage of money means investment in the capital market and other high-risk sectors and the BB will take further policy steps to trim down the credit flow to these areas.’
He said the central bank’s drive would widen the access to credit of underserved productive sectors.
‘At present, the credit flow to the private sector is higher than the central bank’s target and measures will be taken to bring it down to a reasonable level,’ he said.
The BB, however, said increase in domestic non-food consumer price index inflation from possible upward revision of subsidised prices of gas, power, and fuel oil might offset some of the easing of domestic food inflation in line with the expected moderation in global commodity prices.
The BBS data shows, as on June 30, 2011, the CPI inflation is 10.17 per cent and the non-food inflation is on the rise.
‘It is true that inflation will continue and monetary policy itself is not enough to control it. But, policy measures will be taken to address inflation,’ he added.
Atiur said the excessive pressure on balance of payment has eased due to increased realisation of export payments and the new measures would help the overall situation stabilise.
He said, ‘BB expects that the rising demand for credit from the private sector will be financed with term borrowing or equity from external sources.’
The BB governor said the demand side pressure on domestic credit must ease, if excessive depreciation of taka, BOP adversities, and liquidity difficulties of lenders from asset-liability maturity mismatch must be avoided.
An inter-bank market of funds for Islamic banks will also be introduced to enhance utilisation efficiency of these funds, he added.
Atiur also said guidelines would be developed in consultation with lending banks that would require the major portion of capital costs of individual projects to be borne by owner’s equity, capital market debt issues, and external term loans.
Deputy governor Ziaul Hasan Siddiqui said the central bank would take necessary steps, considering the situation, in line with the new monetary policy.
-WIth New Age input