Special Correspondent :
The central bank will face uphill task in achieving the key goals of the new monetary policy unless good governance is established in the country’s banking sector and drastic reform measures are taken to revive the current investment cycle, economists said on Wednesday.
They said, an investment crunch is prevailing in the economy as a consequence of rampant corruption, high lending rates, poor infrastructure, political uncertainty and unsuitable rules and regulations. Such an environment also encouraged many to siphon off big capital out of the country in the past by adopting illegal means.
“The effective implementation of the monetary policy will largely depend on a number of issues, including good governance in the banking sector and improvement of the current investment climate,” Dr AB Mirza Azizul Islam, a former Adviser of the caretaker government told The New Nation yesterday.
Bangladesh Bank in its new monetary policy set broad money (M2) and domestic credit growth ceiling at 12.0 per cent and 15.9 per cent respectively.
It also fixed private sector credit growth target at 16.5 per cent and public sector credit target at 10.9 per cent for the second half of this fiscal year. “I would argue that monetary policy does remain a good tool to stimulate investment and growth, but it only works in conjunction with better infrastructure and lower interest rates,” said Dr AB Mirza Azizul Islam, adding, “Most commercial banks remain under liquidity pressure pushing up the interest rates. Besides inadequate infrastructure, red tape and corruption are affecting the investment climate. In this context, achieving the key targets of new monetary policy will be highly challenging for the central bank.”
He said the key challenge of the monetary policy will be accelerating credit to private sectors, which is necessary to promote job and economic growth.
“The central bank keeps status quo in its key policy rates in the monetary policy which is not supportive to smooth credit flow to financial and capital market,” economist Prof Abu Ahmed told The New Nation.
He said inadequate money supply to the market could put further liquidity pressure in banks affecting the private sector investment and GDP growth.
“The central bank should make downward readjustment of the repo and reverse repo rates to give a push in interest cut for creating credit demands for the private sector entrepreneurs who remained investment shy mainly due to high lending rates,” he added.
Prof Abu Ahmed further said that the central bank failed to meet the private sector credit growth target set at its previous monetary policy due to lack of direct linkage between the lower interest rates and investment.
“This may be going to happen again due to Bangladesh Bank’s failure to adhere a balance monetary policy. Even, it did not spell out policy measures to bring down high non-performing loans to help bank’s overcome their liquidity pressure. So, in my mind, the new monetary policy is not investment and growth friendly.”
