Economists suggest the forthcoming monetary policy should be "contractionary" to manage impact of election-time splurge on the economy and multifarious tensions persisting on the money market.
However, some key targets set in the June-December monetary policy statement (MPS) for the first half of this fiscal year remained unmet mainly because of less-than-expected government borrowings.
Amid this situation, the central bank is set to announce its second half-yearly monetary policy statement today (Monday).
Leading economists, who are familiar with the financial market, said in election year intending candidates and others pour money into the economy which may heat up the headline inflation.
Talking to the Financial Express (FE) they viewed that commodity prices on the international market have heated up since early this new year and it may impact upon the domestic market further fueling up the inflationary pressures.
Such a spike would hit hard limited-income group of people, they forewarned.
The economists, who keep a constant watch over developments in the country's financial and macroeconomic affairs, told the FE that a desirable monetary tool to contain the high credit growth in the private sector is a change in the policy rates instead of intervention into deposit-advance ratio.
They argue that many private commercial banks have higher ratio of lending but they mostly have good recovery rates and low non-performing loans than that of the state-owned commercial banks.
Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank, favours changes in the policy rates.
"To my mind, this is more desirable."
He said the private commercial banks that are near deposit-advance thresholds have less overhangs of NPLs and they usually maintain quality of loans, bar the upstart fourth-generation banks.
The World Bank economist argued that there are many good banks and they maintain low NPLs and good recovery rates although the deposit-advance thresholds are high with them.
"If there are changes in the policy rates, then the banks who have higher NPLS will borrow from such expensive sources and they may be careful in disbursing loans."
Dr Hussain, however, feels the need for stringent regulations to ensure quality of loans.
"We must ensure as to whether they follow 'due diligence' while disbursing loans," he said, against the backdrop of some incidents of lending deviations.
Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), told the FE that the MPS should be contractionary on grounds of multiple tensions on the money market.
"There are huge NPLs, low deposit growth, foreign exchange pressure …
"There is no way but to go cotractionary," the policy analyst said to underscore the necessity of belt-tightening.
Dr Mirza Azizul Islam, an economist and former caretaker government adviser, told the FE that the MPS should address how to restore the health of the financial sector.
"There's aggressive lending and it should be stopped and productive lending encouraged," the economist said, emphasising that the main issue is to address "ever-rising" NPLs.
"To my mind, the private-sector-credit growth should be kept within 16.5," he commented.
And net domestic asset should be at 12.1 per cent against 15.9 per cent, public-sector-credit growth at minus 8.3 per cent against 3.8 per cent and broad money at 10.7 per cent against 12.9, he said.
Private-sector credits surpassed the monetary target to 18.1 per cent against 16.2 per cent, net foreign asset as of December stood at 6.8 per cent against its target of 4.7 per cent, reserve money at 13.3 per cent against 12.8 per cent monetary target.
The next one to be the last monetary policy statement under the present government as the national-elections process kicks off next October, as stated by government high-ups.