Kazi Zahidul Hasan :Economists on Friday expressed the view that improvement of investment and growth will be the key challenge for the Bangladesh Bank’s (BB) new monetary policy.BB on Thursday unveiled its Monetary Policy Statement (MPS) for the second half (H2) of the current fiscal, aiming to boost private sector investment and containing inflation.”The biggest challenge of BB’s new monetary will be injecting credit to the private sector when a lull was prevailing in the country’s investment fronts,” Dr Zahid Hussain, Lead Economist, World Bank’s (WB) Bangladesh Country Office, told The New Nation on Friday.He said, private sector investment remained stagnant and did not pick up in line with the BB’s monetary targets for the last few years retarding the growth of Gross Domestic Product (GDP). In the previous monetary policy (July-December last year), BB set the private sector credit growth target at 14.30 per cent. But it rose to 13.73 per cent missing the monetary target.”Such credit growth is constrained mainly due to high bank interest rates mixed with unfavorable political and investment climate,” observed Dr Hussain. He further said that BB might have the mechanism to ensure adequate credit flow to the private sector, but it does not have the capacity to remove other bottlenecks to investment.”Private sector credit growth is projected at 14.8 per cent in the new monetary policy. But the prevailing condition suggests that BB is going to miss the credit target again. Such an outcome could lead to uncertainty over achieving the GDP growth target,” he said.The WB’s lead economist, however, said that other monetary programmes that the BB had taken in its new policy is quite realistic if we take account the prevailing economic conditions of the country. When asked, he said, the BB’s new monetary policy is nothing but the continuation of previous ones which it has been perusing for the last few year. “BB seems to be focused on more investment and growth promotion in its new monetary policy. But these tasks may not be easy given the present economic situation,” Dr Salehuddin Ahmed, former BB governor told, The New Nation on Friday. He pointed out that the immediate objective of the monetary policy is to generate demand for credit for nurturing investment and taming inflation. “The new policy may not help accelerate the demand for credit among the investors when a sluggish investment climate is prevailing in the country,” said Dr Ahmed, adding, “Private sector investment will not pick up unless the country’s investment climate is improved.” According to him, the investment climate faces set back because of energy crisis, infrastructure deficiencies, lack of business friendly policies and political uncertainty. “BB has nothing to do in this regard unless these critical issues are addressed by the government,” he noted.Regarding inflation control, the Dr Salehuddin Ahmed said, the food inflation was witnessing a declining trend in the recent times following fall in global commodity prices, but the rising trend of non-food inflation can further push up the general inflation in the months to come. According to the BB’s latest MPS, inflation is expected to land on 6.07 per cent in June 2016 from 6.2 per cent in December 2015. When asked, the former BB governor said, in my mind, the central bank tried its best to formulate a balanced monetary policy. The policy was formulated considering the prevailing macroeconomic situation of the country. “It has given a concerted effort to support the government’s fiscal policy. ‘Check and balance’ has been introduced with its monetary programmes to this endeavor,” he added. “The new monetary policy is not ‘overambitious’, and it is more or less realistic,” Dr AB Mirza Azizul Islam, former Adviser of the Caretaker Government told The New Nation yesterday. He said: I am happy to see that the policy was adopted in line with the present trend of the national economy and political situation”. “But I see evidence of internal inconsistencies between the policy rate cut and private sector credit growth target in the MPS. The policy rate cut by 50 basis points was taken to create lending demands by banks to accelerate investment. On the other hand, it has set a lower credit target for the private sector that is conflicting with the BB’s rate cut policy.” Dr AB Mirza Azizul Islam, a noted economist of the country, further said that though the central bank has pledged for investment promotion, it has fixed a lower credit target for the private sector indicating that the overall investment scenario in the country is not satisfactory.”Both local and foreign investment remains stagnant for the last few years, which is a matter of concern. A lower investment is affecting the GDP growth, which should be accelerated above 7.0 per cent to transform the country into a middle-income one by 2021,” he said, “So, boosting investment is the foremost challenge not for the BB, but also for the country, he said. Mirza Aziz held responsible the prevailing energy shortage, red tapism, corruption, poor road communication, political uncertainty and bad governance for the country’s current state of the investment climate. “The investment scenario will not change unless these barriers are removed. This has also a correlation with boosting credit demands for the private sector,” he said, adding, “BB may miss the private sector credit target despite the fact that it set a lower target.”
