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Cautious monetary policy now eyes lower growth at around 6pc

Staff Correspondent

Bangladesh Bank on Monday announced a ‘cautious monetary policy’ for the second half of the political crisis-hit financial year 2014 targeting a lower GDP growth at around 6 per cent and bringing down the inflation to 7 per cent.
The central bank in its monetary policy statement for the January-June kept major targets including the private sector credit growth almost similar to that of the last monetary policy of the first half of the current financial year.
Economists and BB officials told New Age that the central bank had kept unchanged the monetary targets considering the country’s prevailing unfriendly business environment against the backdrop political uncertainty surrounding the general elections.
Besides, as the central bank failed to achieve almost all its monetary targets for July-December 2013, it unchanged the goals for its current tenure, the said.
BB governor Atiur Rahman, while announcing the monetary policy, said although pre-election violence and strikes battered the economy, major sectors like export and agriculture showed resilience.
‘If there is no major debacle in the coming months, we are hoping that the GDP growth will be around 6 per cent in the current financial year as the stable and positive major economic indicators give us confidence that the economy in the second half will be able to overcome the losses inflicted by the political instability in the first half,’ he said.
The government earlier in the budget for the current financial year projected a GDP growth rate at 7.2 per cent, based on which the central bank announced an MPS for the first half.
In the latest MPS, the BB again set the credit growth in the private sector at 16.5 per cent by June 2014 although it raised the public sector credit growth to 22.90 per cent from earlier projection target at 19.5 per cent set in the first half.
The BB set the credit growth in the domestic sector at 17.8 per cent by June 2014 against the earlier projection target at 17.2 per cent.
According to the latest BB data, private sector credit growth declined to 11.13 per cent in November 2013 compared with that of 17.41 per cent in the corresponding month of 2012, and the overall domestic sector to 10.78 per cent from 14.83 per cent.
The central bank, however, spurred the country’s larger corporate and conglomerate groups to collect finance from the capital market by issuing equity and debenture so that the small borrowers would be able to receive credit from the short-term deposits of the banks.
The central bank also unchanged the inflation target to bring it down to 7 per cent by June 2014 in accordance with the budget for this financial year saying that the target would face a challenging situation due to the higher food inflation in recent months.
The MPS said that the slightly higher credit to public sector figure in percentage terms for June 2014 in the current monetary policy is due to the fact that the first half of the FY14 the MPS was based on an estimate figure for June 2013 government borrowing which turned out to be higher than the actual figure.
Atiur at the policy unveiling session said that the declining remittance due to fall in manpower exports was identified as a major risk of the external sector of the economy.
He advised the department concerned of the government to take steps to increase manpower exports.
The governor said the central bank did not change much the projection targets of the latest MPS against its earlier target which were set in July 2013.
‘We have failed to accommodate the monetary projection target for July-December of 2014. The recent political volatility had not been created when we set the targets for monetary policy in July 2013.’
Against the backdrop, the BB has recently taken a number of programmes to create confidence among the business people.
The BB cut the rate of interest on its export development fund and it also increased the size of the fund in the interest of the exporters, he said.
He said that the central bank would inject more credit into the market than its target if the demand increased in the private sector.
Atiur said the higher food inflation than the non-food inflation had pressurised the overall inflation in December. The overall inflation stood at 7.53 per cent in December against the target at 7 per cent.
‘The monetary policy usually keeps slightly contribution in containing the food inflation. The BB, however, will take initiative to provide adequate loan in the farm sector to ease the food inflation,’ he said.
The BB governor urge the corporate groups to collect financing from the capital market instead of banking sector in a bid to stimulate the financial inclusion programme.
In the latest MPS, the BB set the net foreign asset growth target at 10 per cent by June 2014 from the earlier projection target at 8.40 per cent and the net domestic asset at 18.60 per cent from 19 per cent.
Former BB governor Salehuddin Ahmed told New Age that the BB had failed to achieve almost all its monetary targets for July-December 2013 due to the political uncertainty.
The existing monetary projection may fail if the business confidence comes back, he said.
‘There is a need of transparent policy to boost up the GDP growth, but the central bank’s new MPS did not show any policy for the investors’, he said.
The BB set the new monetary tools considering the existing uncertainty in the investment due to the political unrest, he said.
The central bank should have increased the private sector credit growth to 18 per cent to 19 per cent in a bid to encourage the entrepreneurs, he said.
Former caretaker government adviser AB Mirza Azizul Islam told New Age that majority number of the banks was now enjoying available liquidity due to the lower investment trend in the private sector.
The latest central bank’s monetary projection is satisfactory, but it would not be achievable if the uncertainly persists in the months to come, he said.

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