“The Monetary Policy is cautious but accommodative,” Bangladesh Bank Governor, Fazle Kabir revealed at his office after unveiling the Monetary Policy Statement for July-December.
The highlights of the Monetary Policy are:
• Broad money (M2) growth for FY17 is set at 15.5%, based on the FY17 GDP growth and CPI inflation targets of 7.2 and 5.8%, respectively.
• Domestic credit is projected to grow by 16.4% y-o-y in FY17, with credit to private sector credit growing by 16.5% and credit to the public sector by 15.9%.
• Downward edging annual average CPI inflation eased to 5.9% in June 2016. But its higher nonfood component is under pressure from wage gains of rural laborers and public employees; offset somewhat by continuing moderate trends of global commodity prices. This, coupled with proactive management of market liquidity, is expected to keep FY17 CPI inflation at or close to the 5.8% target level.
• The declining trends in interest rates in the domestic market will be sustained by strengthened supervisory oversight on efforts of bringing down nonperforming loans. Bangladesh Bank’s policy interest rate repo, reverse repo rates) will continue to remain unchanged at the current levels of 6.75 and 4.75%, respectively.
• Grounded on the growth supportive developmental mandate in its charter, Bangladesh Bank’s motivational efforts and supervisory surveillance will continue to focus on inclusive, productive use of credit; with particular attention to the adequacy of credit flows to agriculture, SMEs, and environmentally benign ‘green’ output initiatives.
The Bangladesh Bank would enhance its monitoring so that the credits are not used in unproductive and risky sectors, Kabir said. It would also ensure that they go to domestic and export-oriented industries instead.
As in the past, the central bank would ensure the availability of loans for the farming sector to ensure food security, said the governor. The supervision would be tighter so that the small and medium manufacturing sectors receive low-cost financing, he said.
The declining trend for interest rates will be sustained by strengthened supervisory oversight on efforts to bring down nonperforming loans, according to the statement. Kabir said non-performing loans or NPLs in banks in Bangladesh are higher compared to those in neighboring countries. As a result, the rate of reduction of interest rate, as demanded by the business community, is slow.
“But only proper risk management and timely loan repayment can cut the nonperforming loans and thus the interest rate.”
SK Sur Chowdhury, Deputy Governor, said the Central Bank has taken up a liberalized policy in consumer loans to prop up sectors such as Housing. “This may boost credit growth as there is no liquidity crunch at banks,” he added.
Deputy Governor Abu Hena Mohd Razee Hassan said the recent rise in militant activities in Bangladesh is part of a global problem.
Hassan said the country’s law-enforcement agencies are working against the violent activities of the militant groups.
