The central bank considers the fears of political instability and uncertainty ahead of the general elections as the biggest challenge for the economy.
Top officials of Bangladesh Bank made the observation while announcing the new monetary policy for the first half of the 2013-14 financial year at a press conference on Thursday.
Governor Atiur Rahman said: “We have to consider the reality… We must acknowledge that there is a political challenge in the country. Everything will go well if the challenge can be tackled effectively. Otherwise risk will remain.”
Announcing the new monetary policy, he said it would be ‘balanced’ like in the last half year “considering the issues of inflation control and attainment of expected economic growth”.
The central bank warned that GDP growth targeted for the year will remain out of reach unless there was growth in investment, including in the infrastructure sector. “Keeping inflation within the expected level is a big challenge.”
The policy has fixed a target of 15.5 percent growth in credit flow to the private sector in the July-Dec period against 18.5 percent for the previous six months. However, the achieved growth in the Jan-May period was 11.4 percent.
The bank admitted there was little hope of clocking the expected 7.2 percent growth this fiscal year due to uncertainties.
In the policy, Bangladesh Bank has kept unchanged the Repo rate at 7.5-basis point.
Governor Rahman said: “Considering the recent trend, rate of interest and Statutory Reserve Ratio have been kept unchanged in the policy. But it’s difficult to bring down the inflation rate to 7 percent.”
He described pressure for salary and wage hike in the public and private sectors, political instability, supply constraints of commodities and anticipated rise in money flow ahead of the national elections as the challenges for controlling inflation.
Asked if it was possible to reach growth target amid reduced credit flow to the private sector, Bangladesh Bank Change Management Advisor Allah Malik Kazemi said: “Credit flow to the private sector has not been cut. Only the growth has been limited. That’s why there will be no crisis of money in growth-accelerating sectors. Bangladesh Bank will closely see where the loan money is being spent.”
At the press conference, the Governor spoke of the central bank measures taken about state-owned BASIC Bank following a loan scam.
He said a memorandum of understanding has been signed with the Board of Directors of the commercial bank under which it would submit reports regularly to the central bank on several matters.
Deputy Governor Shitangshu Kumar Sur Chowdhury said the MoU was signed following detection of irregularities in loan disbursements in its several branches.
Asked if the MoU is ‘advance self-defence’ against any future loan scam, he said: “Bangladesh Bank has done whatever it thinks is necessary. Everybody should be informed about it. It’s no self-defence.”