The central bank on Saturday announced the monetary policy statement (MPS) for the first half of the current fiscal focusing on a low and stable inflation and credit boost in productive sectors to support inclusive economic growth.
In its monetary recipe for the July-December period of the fiscal 2014-15, Bangladesh Bank (BB) has aimed to bring average inflation down to 6.5 per cent by June 2015 while the ceiling for private sector credit growth setting at 16.5 per cent.
BB Governor Dr Atiur Rahman announced the monetary policy in a crowded press conference held at the BB headquarters in the city.
The central bank earlier set July 27 for announcing the MPS, but rescheduled the date because of Eid vacation, beginning from July 29.
“The new monetary policy is ‘cautious and investment friendly’ in nature and the main objective of it will be boosting private sector investment and containing inflation,” said Dr Atiur Rahman while announcing the monetary policy.
He added, the central bank wants to tame inflation with supply of adequate
credit to productive sectors to achieve maximum economic growth through employment generation across the country.
The BB governor, however, said this policy statement was not very different from that of previous one, though there is a distinct emphasis on implementation.
According to the BB statement, the monetary stance for the first half (H1) of the fiscal year (FY) 2014-15 takes recent economic and financial sector developments into account and will target a monetary growth path which aims at bringing average inflation down to 6.5 per cent by June 2015.
“The persisting inflationary pressures over the past few months involving the risks ahead relating to the inflation outlook implies that achieving the FY15 inflation target of 6.5 per cent will be challenging,” BB said in its MPS.
It also said that limiting government borrowing from the banking sector is important for achieving inflation targets and providing the space for banks to lend to the private sector. The H1FY15 monetary programme assumes that any unanticipated spending pressures will be accommodated within the sizeable (312 billion taka) borrowing limit set in the FY15 Budget.
“The monetary programme framework also limits reserve money growth to 15.5 per cent and broad money growth to 16 per cent by December 2014,” it said, adding, “The ceiling for private sector credit growth of 16.5 per cent including foreign borrowing.”
BB views these figures as indicative ceilings and it advised the banks to lend only to creditworthy clients for productive purposes and whether this ceiling is reached or not depends ultimately on investor appetite and the bank’s assessment of project viability.
It also projected the pubic sector credit growth at 12.9 per cent.
Meanwhile, the central bank has decided to keep the key policy rates unchanged as it sees risks to the inflation outlook for the current fiscal year.
The repurchase rate will remain unchanged at 7.25 per cent.
The cash reserve requirement was raised in June by 50 basis points to absorb part of the excess liquidity and help contain inflation.
GDP growth will pick up in FY15 and could range between 6.2 and 6.5 per cent if there is no major disruption to economy, BB said.
The BB’s monetary and financial policies will remain supportive of investment and growth, while also being anchored to macroeconomic and financial stability, the central bank chief noted.
“We want to implement the targets. However, if growth rate increases further, we have the capability to meet the increased credit-demand of private and the public sectors,” said Dr Atiur Rahman.
He also said the latest MPS has been announced with a note of healthy optimism for achieving an inclusive growth to help rapid poverty eradication and eventual prosperity of the country.
