Bangladesh Bank on Thursday announced a ‘cautious’ monetary policy statement (MPS) cutting the private sector credit growth target to 15 per cent for the financial year 2015-16 from 15.50 per cent in the previous financial year due to inadequacy of infrastructure and impediments to investment.
The central bank also set a lower private sector credit growth target of 14.3 per cent for July-December of 2015 considering the existing adverse investment scenario.
The BB estimated that the private sector credit growth might stand at 13.60 per cent in the FY15 against the target of 15.50 per cent.
Businesspeople and experts said the central bank maintained its previous stance in setting monetary targets which would not put any significant impact on the private sector if the existing political uncertainty and infrastructure crisis were not removed.
The central bank failed to achieve the target of private sector credit growth in the last three financial years due to political crisis and uncertainty.
BB governor Atiur Rahman, while announcing the monetary policy for the FY16 at the central bank’s headquarters in the capital, termed the latest monetary policy statement as ‘cautious and restrained’ like the previous policies.
He said, ‘Some quarter hold the view that setting high targets for credit expansion is needed for stimulating GDP growth. However, pumping in excessive liquidity in absence of progress in addressing the infrastructural inadequacies and other well-known investment impediments will only stoke inflation and worsen social inequality by encouraging unproductive speculative pursuits.’
In reply to a question, he said absence of implementation of the government projects in due time was one of the obstacles to boosting the investment.
He said the government should give more attention to the timely implementation of its projects for the investment growth.
Dhaka Chamber of Commerce and Industry president Hossain Khaled told New Age on Thursday that the lower credit growth target for the private sector would discourage the businesspeople in expanding their industrial units and the production.
The central bank should have set the target between 17 per cent and 18 per to boost the confidence of the businessmen as the
industrial sector is now passing a stagnant situation, he said.
Khaled said, ‘The DCCI earlier prepared “vision of 2030” to forward the country’s industrial sector and GDP growth. I think the private sector credit growth will gradually increase to 28 per cent to 30 per cent.’
But, the central bank’s stance will batter the vision, he said.
Former Federation of Bangladesh Chambers of Commerce and Industry president AK Azad told New Age that the private sector credit growth set by the BB would not bring any positive or negative impact to the business sector.
Infrastructure crisis and political uncertainty were the main problems in stimulating the private sector, he said.
The government should take initiative to remove the inadequacy of electricity and gas as the industrial sector is now facing shortage of power connections, he said.
Former interim government finance adviser Mirza Azizul Islam told New Age that the latest monetary policy was completely accommodative as it tried to accommodate the government’s target of inflation and GDP growth.
There is no fundamental change in the latest monetary policy than that of the last two or three years, he said.
Mirza Aziz feared that the BB would fail again to achieve the lowered private sector credit growth target if the existing political uncertainty and inadequacy of infrastructure persist.
Policy Research Institute executive director Ahsan H Mansur said the central bank’s monetary stance was appropriate considering the existing scenario.
The BB should take more initiative to decrease the rate of interest to fuel the private investment, he said.
The central bank in its monetary policy set the annual average consumer inflow target at 6.2 per cent by June of the FY16 in line with the government target from its target of 6.5 per cent by June 2015. The inflation stood at 6.4 per cent at the end of June 2015.
At the unveiling session of the monetary policy, Atiur said that point-to-point CPI inflation edged up slightly to 6.25 per cent in June 2015 from 6.19 per cent in May.
Besides, non-food and non-fuel CPI inflation also remained upward in May and June, indicating that the task of bearing down on inflation expectations is not yet over, he said.
In the latest MPS, the BB set the public sector credit growth at 8 per cent by December 2015 and 23.27 per cent by June 2016 in line with the government requirement.
The BB set the net foreign asset growth target at 15.8 per cent by December 2015 and the net domestic asset growth target at 3.3 per cent.
Atiur said that the central bank decreased the net foreign asset target for the FY16 as the import would pick up in the second half of the FY16.
Against the backdrop, deficit in trade between export and import and current account balance will also widen in this financial year, he said.
The BB projected that the trade deficit would cross $10 billion in FY15 and $13.4 billion in FY16 while the deficit in current account would decline to $1.63 billion in the FY15 and $3.55 billion in FY16.
In the MPS, the BB set the supply of broad money at 15 per cent by December 2015 and 15.6 per cent by June 2016.
The BB said the supply target of broad money would accommodate both the GDP growth and inflation target.
Source: New Age
