Dhaka, Bangladesh (BBN) – The central bank of Bangladesh unveiled an ‘investment-friendly, cautious’ monetary policy on Saturday with an aim to achieve maximum economic growth by slashing inflationary pressure on the economy.
“We’ve sought cooperation from the stakeholders to help implement the investment-friendly, cautious monetary policy properly,” Bangladesh Bank (BB) Governor Dr Atiur Rahman told newsmen while announcing the monetary policy statement (MPS) for July-December period of the current fiscal year (FY), 2014-15.
The latest MPS takes these recent economic and financial sector developments into account and will target a monetary growth path which aims to bring average inflation down to 6.5 per cent by end FY15, while ensuring that credit growth is sufficient to stimulate inclusive economic growth.
“The risks to the inflation target include global food price volatility, any shocks to domestic crop output and the knock-on impacts of any upward adjustments in public sector wages,” the central bank said in its latest MPS.
The central bank will continue to focus on achieving its inflation targets while providing sufficient space in its monetary program for lending to activities which support broad-based investment and inclusive growth objectives.
“The BB will use both monetary and financial sector policy instruments to achieve these goals,” it noted.
The persisting inflationary pressures over the past few months with the risks ahead related to the inflation outlook imply that achieving the FY15 inflation target of 6.5 per cent will be challenging. As such the BB has decided to keep policy rates unchanged.
The repurchase agreement (REPO) rate will remain unchanged at 7.25 per cent.
The Cash Reserve Requirement (CRR) was raised in June 2014 by 50 basis points to absorb part of the excess liquidity and help contain inflation – this remains unchanged.
The central bank set the ceiling for private sector credit growth at 16.5 percent for the first half (H1) of the FY 15.
The ceiling for private sector credit growth of 16.5 per cent including foreign borrowing, and 14 per cent from local sources by December 2014, is based on an assessment of the extent that credit growth could realistically pick-up given current levels of around 11.4 per cent from domestic sources and 15.7 per cent including foreign borrowing, the BB explained.
“This level is sufficient to accommodate any substantial rise in investment and trade-finance over the next six months,” it noted.
“By June 2015, our current monetary program anticipates a further pick-up in private sector credit from domestic sources to 15.5 per cent. BB views these figures as indicative ceilings– banks continue to be advised to lend only to creditworthy clients for productive purposes and whether this ceiling is reached or not depends ultimately on investor appetite and the bank’s assessment of project viability,” the BB said.
BBN/SSR/AD-26July14-2:51 pm (BST)