THE recent half yearly monetary policy announced by Bangladesh Bank has flaunted the gross difference in the country’s economic growth -in scale of GDP and inflation rate – with the FY 2014-15 budgetary forecasts. The government in the budget set the country’s GDP growth target 7.3 percent and inflation rate 6 percent while the central bank set the GDP growth between 6.2 percent and 6.5 percent and inflation rate under 6.5 percent though in the recently concluded fiscal year GDP was only 6.1 percent and inflation rate was 7.4 percent.
The monetary policy has been welcomed by investors and businessmen, but the government borrowing from central and other commercial banks in the first 15 days of the fiscal year to meet its expenses, has frightened the economy of slowing down, which will set the economic growth in limbo.
Monetary policy determines the size and rate of growth of money supply. If the money supply grows too fast, the rate of inflation will increase; if the growth of the money supply is slowed too much, then economic growth may also slow. Given the rapid growth in local firms’ borrowing from overseas, this monetary policy sets a private sector credit growth ceiling as a sum of both local and overseas borrowing by firms. Zahid Hussain, lead economist at the World Bank’s Dhaka office, said the central bank has set monetary growth targets in line with realistic growth and inflation targets. There is adequate space for growth of credit to the private sector and accommodation of the government’s bank borrowing target in the fiscal 2015 budget.
The half-yearly Monetary Policy Statement said commodity prices and regional inflation continue to pose a key country risk due to a number of factors. Escalation of future uncertainties in the Middle East may have a significant impact on oil price volatility. To minimise the risks the central bank will continue to focus on achieving its inflation targets while providing sufficient space in its monetary programme for lending to activities which support broad-based investment and inclusive growth objectives. Bangladesh Bank Governor Atiur Rahman said the space for private sector credit growth has been kept well in line with output growth targets and is sufficient to accommodate any substantial rise in investment over the next six months. Private capital flows to local companies have also grown due to the addition of short-term foreign currency loans for working capital purposes. The government’s borrowing from the banking system increased by 1,956.60 percent in the first 15 days of this financial year compared with that of the corresponding period of the FY14, reached the borrowing from the banks by the government at Tk 3,384.56 crore until July 15, will fuel the consumer inflation.
Though remittances acted as an imperative catalyst in GDP growth, we recommend the incumbent ruler to remove the bottlenecks in manpower export. Besides, the government has to welcome investors to invest in small and medium enterprises in rural and urban areas as the country’s payment system got modernized. If the time worthy monetary policy fails to reach the projected target, all the good plans will be treated as bubbles.
The success of the Monetary Policy is very much dependent on the borrowing volume of the government. If the government favours higher internal borrowing from banking sources, there will hardly be any fund available for investment in private sector which means the expansionary policy may die a premature death.
