Dhaka, Bangladesh (BBN)- The central bank of Bangladesh has unveiled a balanced monetary policy statement (MPS) aiming at attaining maximum economic growth.
It also sought to ensure sufficient credit flow for productive sectors and bring down inflation to 7.5 percent by the on-going fiscal year.
“We’ve announced a balanced monetary policy to minimize excessive volatility of the exchange rate,” Bangladesh Bank (BB) Governor Atiur Rahman said. He was releasing the MPS for January-June period of the fiscal 2012-13 (FY13) on Thursday.
The central bank chief said, these objectives involve trade-offs and the balance between BB’s instruments. Its targets will be reviewed regularly, he added.
The BB governor said, the MPS is designed to ensure that the credit flow is sufficient for productive investment. It will support attainment of the government’s FY13 real gross domestic product (GDP) growth target. The policy was framed keeping in view the targeted 7.5 per cent average inflation rate for the current fiscal, he added.
The BB has also revised its monetary program with increased private sector credit growth target. The target has been set at 18.50 per cent for the second half (H2) of this fiscal year from 18.0 per cent of the original program.
On the other hand, broad money growth target has been increased. It will rise to 17.7 per cent during the period under review from 16.5 per cent of the original target, according to the MPS.
“We’ve created further space in our monetary program in case there is greater lending appetite for productive purposes. It will be sufficient to accommodate even an optimistic scenario for output growth,” Dr Rahman noted.
He also said, the BB remains committed to bring inflation down further, and also to avoid asset price bubbles. As such, the Bank continues to encourage banks to use the space for private sector growth for productive, and not speculative, purposes.
“We’ll continue to focus on ensuring that credit is used for productive purposes consistent with financial inclusion goals,” the governor said. He said, BB’s policies have also contributed to stability in the capital market, The Bank will continue to collaborate with the Bangladesh Securities and Exchange Commission (BSEC).
“We’ll review our monetary policy each month considering both the global and national perspectives,” the governor said while replying to a query. He said the central bank is working to attain maximum economic growth in line with the government’s target.
“We want to spur economic growth and at the same time, curb inflation,” the BB governor said while explaining the main objectives of the MPS.
BB senior consultant Allah Malek Kazemi said: “We want to alleviate poverty by achieving maximum economic growth.”
He also said the central bank has taken into consideration the private sector credit from overseas sources while formulating the new MPS.
“The interested rate spread has marked a declining trend in recent months. It will be continued in the near future,” BB deputy governor SK Sur Chowdhury said. The Bank has already strengthened its monitoring and supervision in this connection, he added.
The country's inflation, as measured by consumers' price index (CPI), moved slightly in December 2012 on point-to-point basis. This is mainly because of increase in prices of food items.
The inflation rate moved up to 7.69 percent in December last from 7.41 percent of the previous month on the point-to-point basis, according to the Bangladesh Bureau of Statistics (BBS).
On the other hand, the inflation rate came down to 8.74 percent on annual average basis in December from 8.98 per cent in November 2012.
Based on current trends, the average inflation target of 7.5 per cent announced in the FY13 budget appears achievable, though risks remain, the MPS said.
These risks stem from volatile global commodity prices and particularly, the food prices, it said. Any further administered price increases in the energy sector, as well as sharp rise in remittance inflows will put upward pressure on asset prices and non-food inflation, it pointed out.
The BB governor said, average inflation has been declining steadily over the past nine months. The fall was from a peak of 10.96 per cent in February to 8.74 per cent in December and within reach of the FY13 CPI inflation target of 7.5 per cent.
“This decline has been due both to lower food and non-food price inflation. The point-to-point non-food inflation declined from a peak of 13.96 per cent in March to 8.43 per cent in December 2012,” the central bank chief said.
About GDP growth, the governor said, BB’s forecast suggests that FY13 real GDP growth is unlikely to be less than the previous ten years’ average. It may exceed it if global conditions improve.
The central bank earlier forecast, the real GDP growth would be between 6.1 percent and 6.4 percent by the end of the FY 13.
The BB, however, projected that the country’s overall balance of payments (BoP) would be in surplus. The surplus will be to the tune of $2.226 billion by the end of this fiscal from $494 million in FY’12.
The current account balance is likely to rise to $1.075 billion in FY’13 from $151 million in FY’12, the MPS said.
The country’s trade balance may come down to a negative level of $8.637 billion by the end of FY13 from $9.317 billion (in the negative) in the previous fiscal.
“This monetary program takes into account various global and domestic risks for H2 of FY13 and has built-in degree of flexibility to take into account changed circumstances,” the MPS said.
It also said, financial sector stability is important for effective monetary policy. The BB will continue its intensified focus on bolstering financial sector soundness and stability.
The monetary policy will be used to improve market mechanisms, the MPS said. It added that the BB would continue to focus on quality, composition and pricing of private sector credit.
The first-ever monetary policy statement was formally made in January 2006. The BB declared that it would publish it on a half-yearly basis along with a half-yearly policy review.
BBN/SSR/AD-01Heb13-11:30 am (BST)
