The Bangladesh Bank (BB) recently unveiled its 'cautiously accommodative' monetary policy aiming to achieve maximum economic growth through boosting investment, particularly in productive sectors. "The monetary policy is cautiously accommodative," BB Governor Fazle Kabir said while formally announcing the monetary policy statement (MPS) for the July-December period of the current fiscal year (FY) 2016-17 at a press conference. The central bank chief believed that the MPS would support and advance momentum of inclusive, equitable and environmentally sustainable growth, further consolidating inflation moderation and macroeconomic stability.
The BB has increased private sector credit growth target substantially for the FY'17 in consideration of the country's overall situation. Private sector credit growth is projected to grow by 16.5 per cent by the end of FY'17, against 14.8 per cent of FY'16. But it has been estimated at 16.6 per cent for the H1 of FY17. The BB Governor said that the monetary policy would encourage productive sectors, enhance development, expand financial activity and control supply of money often targeting an inflation rate or interest rate to ensure price stability in the country. The Governor further said that the monetary policy would help improve the country's economic and financial sectors and maintain fiscal stability and achieve the targeted economic growth. He said the prevailing stability in the overall economy including inflation and foreign currency rate should not be disturbed.
The monetary policy has given more focus on ensuring capital flow to productive sectors such as agriculture, small and medium enterprises, energy, tourism, small and cottage industries as well as to the poor. As per the policy, liquidity would be managed so as to maintain consumer inflation rate at 5.8 per cent and to support the government's target of achieving 7.2 per cent economic growth rate as stated in the 2016-17 budget.
The government projected the economic growth to be at 7.2 per cent for the current fiscal year while it set the goal of containing inflation within 5.8 per cent. The monetary policy has projected the lending growth rate in the private sector at 16.5 per cent, in contrast to public sector lending growth rate at 15.9 per cent.
The monetary policy seeks to give priority to productive sectors and accord equal priority to increased access of the people of rural and remote areas to banking services, besides giving priority to increasing financial literacy among the people. The policy concentrates on financial stability, expanding access to finance, helping achieve economic growth and controlling inflation among others.
The monetary policy alone, however, cannot bring about drastic changes. Of course, it is a cautious policy, but the main concern is on its implementation. It is important to maintain policy continuity, particularly when the fiscal policy is moderately expansionary. The private sector has been hoping for sharp reduction in interest rates due to the monetary policy measures, say chamber leaders.
After announcement of the MPS, economists, bankers and other stakeholders in the private sector expected that the MPS would boost investment and economic growth. They said it will also ensure sufficient credit growth to stimulate inclusive financial and economic growth. The policy concentrates on financial stability, expanding access to agricultural finance, which is also a part of the monetary policy statement.
The biggest contribution of the monetary policy was to control inflation. While the consumer price index inflation was more than 13 per cent some years ago, gradually it dropped to 5.9 per cent in the second half-yearly fiscal year 2015-2016. The second success was stabilising the exchange rate between the Bangladeshi taka and foreign currencies while increasing the foreign exchange reserve to more than $30 billion. The third was to cut the interest rate which had been a difficult task for a long time.
A major achievement of the country's banking and financial sector for the year was to cut the lending rate at a rational level, a move that strongly influenced domestic business community and contributed to the national economic recovery. Statistics by the banking sector show that the average annual lending rate is now nine per cent, less than near 22 per cent recorded five to six years ago. The decline in interest rates has helped businesses to boost their production and trading.
To implement the newly-announced monetary policy, more attention should be given to ensure adequate supply of credit, curb inflation and attract investment in productive sectors, particularly in agriculture and agri-businesses. The quality and time-bound private and public investments of course needs a boost and should be given serious attention. Close supervision and monitoring should be strengthened to focus on quality and effective distribution of credit. The cost of fund, especially bank loans, for all sectors should be lessened to a prudential level. Sector-wise loan targets, particularly emphasising on micro, small and medium enterprises and women entrepreneurs should be there .Non-performing loans should be recovered at any cost. The interest rates should be kept at a rational level to give the businesses better opportunities. Cost of doing business should be lessened to help compete globally and also encourage banking services to rural areas in the country.
The writer is a Deputy General Manager of Bangladesh Krishi Bank and a life member of the Bangladesh Economic Association. [email protected]