Private sector credit growth rate falling, yet stays above policy target

Private-sector credit growth fell for the second consecutive month in October amid the central bank's measures to contain inflation and face foreign-currency shortage on the local money market, officials said.

It declined slightly to 13.91 per cent in the last month (October), following 13.93 per cent registered in September, when the growth showed a downward trend from the latest peak of 14.07 per cent in August last, according to Bangladesh Bank (BB) data.

As the economic activities started getting momentum following the COVID pandemic, the demand for credit of the private sector went up as reflected in the BB data.

In March this year, the private credit started rising and registered a growth of 11.29 per cent, followed by 12.48 per cent in April, 12.94 per cent in May, 13.66 per cent in June and 13.95 per cent in July.

The growth rate is still hovering above the 13.60 per cent target set in the monetary policy for the period until December 2022, said a senior BB official, seeking anonymity.

"The latest fall in credit growth is perhaps for the measures to tighten money supply situation amid inflation and to restrict imports due to foreign currency shortage in the country," he added.

The BB data showed that import orders dropped by over 38 per cent in October with opening LCs amounting to US$ 4.74 billion as compared to US$ 7.69 billion in the same month a year ago.

The fall in private sector credit growth started at a time when both demand and time deposits in the banks are on rise with total deposits reaching Tk 14.82 trillion in September this year, up by 7.74 per cent from Tk 13.75 trillion recorded in the same month last year.

Financial market analysts say the fall is a kind of reflection of the central bank's shift to contractionary monetary policy designed to control the inflationary pressure on the economy.

When contacted, Chairman of the Association of Bankers, Bangladesh (ABB) Selim R. F. Hussain said the change in the private sector credit growth is too little and not that significant at all.

"Two months of data are not enough. We need data for a minimum of 3-6 months to properly assess the situation," added Mr. Hussain, also Managing Director and Chief Executive Officer (CEO) of Brac Bank.

Chairman of a local think-tank, Policy Exchange of Bangladesh, Dr. M. Masrur Reaz said the business confidence is probably not good right at this moment because of the disruptions in the global supply chain mainly due to the Russia-Ukraine war.

He said industrial production is hit hard by the ongoing shortage of power and gas. As a result, he added, industrialists might have not shown the courage to borrow from the banks under the current circumstances.

"This could be another reason apart from import tightening steps due to forex dearth," he said.

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