The central bank Sunday announced half-yearly monetary policy offering the private sector enough credit for massive investment to help chase a higher growth target and cautioning that the power and gas crisis coupled with infrastructure deficiency might constrain quick economic development.
The policy statement for six months to December forecasts the gross domestic product growth at 6 per cent — higher than budgetary projection of 5.5 per cent — and the average rate of inflation at 6.5 per cent for this fiscal.
The private sector credit growth has been projected at 16.7 per cent under the new monetary policy dubbed simultaneously ‘proactive and accommodative.’
‘I assure the private sector that the government will ensure flow of as much credit as they need to make productive investment. This is a clear signal,’ said Bangladesh Bank governor Atiur Rahman, allaying the fears that higher public borrowing could limit credit to the private sector.
The policy projected public sector credit growth at 25.3 per cent, up from 24.5 per cent in June 2009.
The central bank is even ready to finance investment projects, if they are considered feasible and worthy, from the foreign exchange reserve.
It may bring certain changes in the monetary policy approach to discourage imports of luxury items so that the inflationary pressure could be eased, the governor pointed out.
‘Deficiencies in gas, electricity and infrastructure supports are key constraints to accelerating economic growth. And addressing the infrastructure deficiencies and speeding up growth in various sectors will depend crucially on capacity for efficient implementation of development programmes,’ said the governor.
Asked how the central bank would utilise the foreign exchange holdings for investment purposes, Allah Malik Qazemi, a senior consultant of the bank, said approximately $500 million could be invested without disturbing the balance of payments during the projected period.
The central bank will now play the role of a real regulator instead of an adviser to compel the banks to slash down interests on lending due to their unwillingness to do so, he said indicating a policy shift to help increase investment.
‘We the central bank are an adviser to the government and we can do one or two things to show the path of investment alongside keeping inflation in check,’ said the governor.
Asked about higher growth projection in spite of conservative estimate announced in the national budget, Atiur, himself a development economist, said the growth might exceed the official projection, should the private sector respond to budgetary steps and global economy recovery early.
‘The private sector credit growth at 16.7 per cent is projected in keeping with GDP growth and inflation. Credit will not be a problem for investment,’ said Ziaul Hassan Siddiqui, deputy governor of the central bank.
Dwelling on the risks of global financial crisis, the Bangladesh Bank projected two scenarios, saying that a prolonged recession might affect remittances, investment and economic growth while an early recovery might cause commodity price hike triggering inflation in Bangladesh as well.
‘Fostering cultural attitudes relying predominantly on equity-based rather than debt-based investments and on disposable income-based rather than credit-based consumption may be better safeguards of financial stability than arrays of regulations of ever increasing complexity,’ the monetary policy suggests.
The governor mentioned that the central bank would monitor the unfolding domestic and external developments, and would stand ready to intervene appropriately to meet challenges for macroeconomic stability and for an inclusive economic growth.
Announcing monetary policy in advance twice a year has been a practice of Bangladesh Bank for the last few years in an effort to tailor the financial instruments to the government’s overall development priorities.
Source: The Daily New Age, 20 July 2009