The monetary policy released by the central bank on Wednesday for the current fiscal year is towards the right direction, economists say warning of the possible abuse.
The policy for 2020-2021 fiscal year is expansionary intended to stimulate demand for additional funds through policy rate cut.
The economists said this will ensure smooth flow of funds to the money market as the economic activities have yet to return to the pre-Covid level.
The economists, however, said that the Bangladesh Bank must be 'watchful' about containing the abuse of the funds and ensure the optimal use of the funds, otherwise, capital flight and real estate bubble may take place.
The BB slashed the overnight repo to 4.75 per cent from 5.25 per cent and reverse repo to be 4.0 per cent from the 4.75 per cent.
It also reduced the bank rate, which has remained unchanged for 17 years, to 4.0 per cent from 5.0 per cent.
Dr. Ahsan H Mansur, executive director at the private think-tank Policy Research Institute of Bangladesh (PRI), said the policy is fine, considering the pandemic-induced economic consequences in the country.
"To my mind, such monetary policy is required for the economy right now," he said.
Dr. Mansur, who is chairman of BRAC Bank, said the interest both on lending and deposits will shrink further in the coming months as the policy signals such development.
He, however, warned many would abuse the resources by capital flights or investments in the real estate.
"I think the central bank should continuously monitor and watch the sectors where the fund is going," he said.
He said the food inflation may pick up, though core inflation may remain stable in the country owing to the expansionary policy.
"Food supply and its import should be uninterrupted to contain the headline inflation following such a policy," he said.
Dr. Mirza Azizul Islam, an economist and former caretaker government adviser, said overall stance of the BB is in the right direction, but implementation will be hard as private investment is not picking up.
"The demand side is poor. What will the entrepreneurs do by taking money from the banking system?" he questioned. He said attaining over 14 per cent credit growth to the private sector in the current fiscal year will be challenging in the present situation.
Economist Dr. Zahid Husssain echoed the views of his peers, saying the central bank has been pursuing such an expansionary policy since the outbreak of Covid-19 in March.
Dr. Hussain said the main challenge lies with the poor demand for money from the private sector.
He said the Bangladesh Bank has identified some real sectors, where the resources will have easy access such as agriculture, SMEs and the manufacturing sectors.
"I think if the money goes to the sectors then it is quite good as it will help expedite the recovery process."
He said: "Otherwise, it will be another burden on the economy."