Staff Reporter :
The Bangladesh Bank (BB) on Thursday unveiled its monetary policy statements (MPS) for the 2022-23 fiscal year with a increase in policy rate and slashing private sector credit growth, aiming at containing inflation by tightening money flow in the market.
The policy rate has been increased by 0.50 per cent, private sector credit growth has been 14.1 per cent and trade deficit has been projected to be at $33 billion in the outgoing fiscal year, the BB Governor Fazle Kabir disclosed while unveiling the policy.
The central bank raised its key interest rate, also known as the policy rate, by 50 basis points to 5.50 per cent, a move that would make funds costlier for banks, the policy said.
It has also set a 14.1 per cent private sector credit growth for 2022-23, marginally down from the target fixed for the outgoing fiscal year. The private sector credit growth target was 14.8 per cent in last fiscal year. But the growth stood at 12.94 per cent in May.
It said the country’s export growth may witness a slowdown in the next fiscal year because of weak external demand.
Owing to domestic demand, there is the possibility of higher import bills, it said.
The trade deficit is expected to increase further to $36.70 billion in the next fiscal year, it said.
The new projection is higher than the BB’s initial projection in the MPS for 2021-22. The central bank had projected the trade deficit to be at $26.60 billion for the outgoing fiscal year. Trade deficit shoots up 53 per cent or $27.56 billion in the first 10 months (July-April) period.
The BB also projected an increase in the current account imbalance to $17.73 billion in the outgoing fiscal year from $4.5 billion a year ago.
“The current account deficit has increased as the growth of export earnings fell below the growth of imports while remittances dipped 16 per cent year-on-year in the July-May period,” Fazle Kabir said.
The central bank, however, expects that the current account deficit would reduce marginally to $16.54 billion in next fiscal year.
The central bank will introduce a new refinance line of credit for import-substituting products to minimise import dependency and save valuable foreign exchange reserves.
The LC margins for luxury goods, fruits, non-cereal foods, canned and processed foods will be increased comprehensively to discourage their imports.
BB will continue its support to implement the government’s ongoing stimulus packages alongside its refinancing schemes in the face of new adversities, including the Russia-Ukraine war as well as the Covid-19 pandemic.
“Bangladesh Bank will continue to strive for the overall stability and long-term development of the capital market, which is essential for the development of the country’s financial sector, in FY2022-23 as in the past. In order to increase the liquidity in the capital market, the size of the assistance fund for the affected small investors has been increased by Tk153 crore to Tk1,009 crore at the initiative of Bangladesh Bank,” the BB governor said.
“Apart from releasing Tk280 crore from this fund, Tk118 crore has been provided through repo under the facility of setting up a special fund of Tk200 crore for each bank’s investment in the capital market,” he said.
He said, “We have adopted a cautious monetary policy, which is contractionary to some extent.”
Fazle Kabir said a review of the latest state of the global and domestic economy, and the recent economic impact of floods in the northeast shows that the main challenge for the monetary policy for the next fiscal year would be to stabilise the domestic exchange rate.
“At the same time, continued support for ongoing economic recovery aimed at job creation is essential for the forthcoming monetary policy,” he said.
