The central bank on Monday announced monetary policy for the next six months of this fiscal keeping repo and reverse repo rate unchanged at 6.75 and 4.75 per cent.
It projects GDP growth for the current fiscal ending June 30 in the range of 7.1 to 7.4 per cent and average inflation 5.7 to 6.0 percent based on recent development of the real economy and external sectors.
The monetary programme outlined in the new policy also keeps domestic credit growth ceiling unchanged at 15.8 per cent, projecting private sector credit growth at 16.8 percent from previous projection of 16.3 per cent and public sector credit growth at 8.3 percent from 12.0 percent.
Private sector credit growth stood at over 18 per cent in the first half of the current fiscal (2017-18).
Announcing the monetary policy for the next six months (January-June 2018), Bangladesh Bank (BB) Governor Dr Fazle Kabir said at a press conference that core inflation continued to remain on a higher trajectory, standing at 5.7 per cent in the first half of current fiscal causing some downside risk on economy. “The average inflation has been gradually edging up in the recent months after declining throughout FY 17 due rising food prices as a result of both flood related disruptions and higher global prices. This, together with a lagged impact of taka depreciation and rising international food and oil prices, the overall inflation is expected to be around 5.7 to 6.0 in June 2018.” Dr Fazle Kabir said the central bank took the decision to keep its key rates unchanged keeping in mind the up trend in inflation and commodity price hike in global market.
“The macroeconomic environment remains conducive to growth without impacting headline inflation. Favorable initial estimates of major crops, a healthy growth in credit to private sector and growing productive imports all indicate solid gains in the real sector. Based on current performance of real sector, GDP growth is likely to reach in the range of 7.1 to 7.4 per cent for FY FY18 leading to an improved capacity to accommodate rising domestic demand,” he added.
Dr Fazle Kabir said despite some challenges steaming from flood-related crop losses economic activities remained buoyant in FY18 underpinned by both domestic and global demands. Exports grew by 7.2 percent during first-half (July-December) of the current fiscal, remittance grew by 12.47, import grew sharply by 27.6 percent during July-November 2017 and manufacturing data also point to strong economic activities. “Based on recent sectoral trends, BB projects real GDP growth in the range of 7.1-7.4 percent, assuming continued political stability,” he said quoting the monetary policy statement.
Responding to a question, he said, rise in import of capital machinery, food grains, industrial raw materials and execution of mega projects boosted credit demands in the market pushing up the private sector credit growth significantly to 18.1 percent in December 2017.
Banks where the credit growth have surged, exceeding prudent levels have been brought under the BB’s stringent scrutiny. They have been asked to bring down their AD ratios by June this year. If fails they will face tough action. Even, we’re working for bringing down the non-performing loan (NPL) to a tolerable level and the situation will improve soon,” said Dr Fazle Kabir.
Regarding liquidity crisis in banks, he said, “One or two banks may be facing liquidity crisis and it will not impact the whole banking sector.”
When asked, Dr Fazle Kabir said, “Despite import pressure the central bank was maintaining a high-level of foreign exchange reserves, which can cover more than six months of projected import payments. Even the central bank continues its support to avoid any large volatility in the foreign exchange market and depreciation of local currency. BB sold US$ 1.1 billion to meet the demands of foreign currency in the local market. Answering to another question, the bureaucrat who turned BB Governor, favours issuing licenses to new banks saying it’s a continuous process and the central bank time to time gives approval for new banks taking the government suggestion although it holds the authority in this regard. “In free market economy, potential sponsors cannot be prevented to form a bank or company in the country,” he added.
BB Governor further said the new monetary policy has been formulated to make a balance between growth and macroeconomic stability in the medium to long term.
The central bank stated that rising domestic inflation, irrational rates of National Savings Certificate (NSC), high NPL and fiscal risk arising to provide supports to the influx of Rohingya refuges as challenges to monetary policy implementation.
