The Bangladesh Bank has not done what the situation demands: It has again kept key policy rates unchanged in the just-announced Monetary Policy for the fiscal year (FY) 2019-20, apparently, for fear of economy coming under renewed inflationary pressure. The central bank has decided to handle liquidity-related stresses on piecemeal basis, instead.
'With markets in comfortable balance and with the economy running at full steam at high growth rate, no easing in policy rates is advisable or necessary. This is not to say however that sporadic pockets of liquidity stress do not or cannot emerge occasionally in one weak bank or another, but the situation can be best handled on case by case basis as and when needed', says the new Monetary Policy Statement (MPS) unveiled on Wednesday last.
But the BB's 'growth supportive objective' as has been explained in new MPS does not necessarily match its private sector credit growth target set for the current FY. During the last FY 2018-19, the private sector credit growth target was set at 16.50 per cent, but the achievement was dismally low, only 11.30 per cent. In the new MPS, the target has been lowered to 14.8 per cent. Though the target is higher than the private sector credit growth achieved in the last FY, it is not enough to spur private investment that is necessary to create sufficient employment in the economy, an avowed objective of all government development plans and monetary policies crafted so far.
It is not very difficult to notice the weakening of growth impulses and slowdown in investment activity in the economy. A sort of reversal is necessary through adoption of befitting monetary measures on the part of the central bank. However, the central bank, as for now, does appear to be more concerned about possible flare up of inflation than helping the investment activities in the private sector. The existence of huge non-performing loans (NPL) in the banking industry could be one of the reasons for taking such an approach.
However, there are some valid reasons for the BB to be a bit sensitive to the issue of inflation. In the latest MPS it has recognised the fact that the price situation has come under pressure lately following upward revision of natural gas prices and new VAT (value added tax) law implementation. The Bank fears some lingering effect of these factors in the coming months. Its worries have been further amplified by the damage caused to standing crops by the currently ravaging floods in many districts. No less important are uncertainties on the external front such as the trade war between China and the USA and the geopolitical tensions.
The central bank honchos while unveiling the Monetary Policy for FY 20 did admit the presence of liquidity shortage in the market, but they appeared to be not much worried by the rising deposit rates as its natural consequence. They were found willing to address the issue 'case by case' and through the operation of the call money market.
Going by the content of the new MPS, one might feel tempted to question the necessity of unveiling the same. Other than setting new credit growth targets for public and private sectors, there is hardly anything substantive in the statement, to be honest.
Besides, the replies that came from the BB's top brass to questions posed by the news reporters at the media briefing session organised the Bank, in many cases, were not adequately informative.