BB`s new monetory policy squeezes private sector credit growth

BANGLADESH Bank has reduced its private sector credit growth target to 16.20 per cent – that so far was maintaining an upward trend in recent months. With a view to decrease money supply in the market, the BB’s monetary policy statement for July-December of this year has clarified it. It was likely to happen since credit growth to the public sector decreased significantly in recent months due to a large amount of government borrowing from the national savings tools avoiding the banking sector. The point, however, the Central Bank would eventually face two potentially strong risks to implement the new monetary policy this fiscal year which are – a continuous large investment in national savings certificates and bond, and downward trend in inward remittances. And the key question in this regard — is the country’s Central Bank prepared to deal with the risks? Also how will it address the biggest obstacle in the path to implement the new monetary policy which is the abnormally high interest rates in our banks? Needs mentioning, the high interest rate on the savings tools has created an obstacle to promote a proper transmission channel to implement the monetary policy. The implementation procedure would have been easier against the backdrop of low interest rate.

The new policy may be a cautious one to contain the inflationary pressure but the most important fact is that BB should have continued to keep increasing the private sector credit growth to make our industrial sector vibrant. There is no denying of the fact that the strength and the GDP growth of our economy hugely depends on the stable growth of the private sector. Our expectation is the new monitory policy to not negatively influence the private sector. Additionally, the policy should have particularly focused on two issues – recovery of large amount of defaulted loans and create a more business-conducive environment in the country. In recent years our entrepreneurs and businessmen have shown little appetite to take loans from the banks against the backdrop of dull business and huge interest rates.

Last but not least, the BB may well have decreased the private sector credit growth to keep space for the government to freely borrow from the banks ahead of the next national elections. In that case there is a strong political agenda behind the drafting of the new monitory policy. Crucially important national monitory policies, such as the new policy should not be election oriented rather it should focus on persistent financial growth while ensuring economic stability.