Bangladesh Bank’s monetary policy focuses on growth, stability

Bangladesh Bank on Wednesday unveiled the first half-year monetary policy statement (MPS) focusing on the economic growth and stability.

“In short, the MPS is focused on stability and employment-oriented growth,” Bangladesh Bank Governor Fazle Kabir said while unveiling the new MPS of 2017-18 fiscal year at a press conference at the central bank.

The new six-month (July-December) MPS targeted an average CPI inflation rate of 5.5 percent against the last six-month’s (January-June) target of 5.8 percent, which stayed at 5.44 percent in June 2017.

The central bank governor said the upward trend in inflation still stays mainly because of food inflation against the backdrop of the loss due to flood in the north-eastern region.

The overall domestic credit growth in the new MPS has been targeted at 15.8 percent to support the government’s 7.4 percent GDP growth.

In the last six months (January-June), the target was 16.4 percent, which grew “moderate” at 11.3 percent until May 2017.

Of the domestic credit, the private sector credit growth was set at 16.3 percent in the new MPS against 16.5 percent in the last six-month’s target while the public sector credit growth was targeted at 12.1 percent against 16.4 percent.

The private sector credit growth was 16 percent in May 2017 while the public sector credit (bank borrowing) was negative growth at -16.2 percent at the same period.

The central bank governor said the negative growth in public borrowing was attributed to the government’s sales of savings certificates. Rather, the government paid a huge amount of its earlier borrowings from the banking system in the last six months, he noted.

But the private sector credit growth was achieved 16 percent in May against the target of 16.5 percent in June 2017.

Being critical of the government’s dependence on sale of the savings certificates for deficit budget, Fazle Kabir said new MPS faces two challenges in its implementation.

He said the non-compatible interest of savings certificates compared with bank interest impedes the development of a potential bond market to finance large public and private sector projects apart from an increase in the government’s expenditure for payment of interest.

“This also impedes the transmission channel of the MPS’s effectiveness,” the governor said adding that the government was thinking of putting a ceiling on the interest of savings certificates and also limit its sale.

“It’s very true the savings certificates are a very important tool for lower and middle class people which they rely on to make their savings. But its rate should be reasonably little bit higher than bank interest rate.”

He said the 2nd challenge for MPS is that many countries are imposing bar on remitting the income of expatriates on suspicion of terror financing, which significantly affects the remittance inflow into the country.

“Many developed countries, including the USA, snapped connections with money transfer agencies which made it tough for expatriate Bangladeshis to send their legally earned money home,” he the BB chief said, adding that Bangladesh has been raising the issue at different international forums.

The MPS said data available through May 2017 indicates that key monetary policy targets and objectives were largely achieved. Broad Money (M2) growth, at 11.7 percent in May 2017, remained well below the target ceiling of 15.5 percent and is expected to be so for fiscal 2017.

Deputy governors of the central bank Abu Hena Razee Hasan and SK Sur Chowdhury also spoke on the occasion.