Bangladesh Bank governor Dr Fazle Kabir. File photo

Dhaka, Bangladesh (BBN)– The central bank of Bangladesh announced ‘cautiously accommodative’ monetary policy statement (MPS) for the current fiscal year aiming to achieve higher growth while taming inflationary pressures.

“The policy stance remains as cautiously accommodative as before,” said Fazle Kabir, governor of the Bangladesh Bank (BB) while announcing the policy at the central bank headhunters in Dhaka on Wednesday.

“The monetary policy stance for FY 20 also take due note of Bangladesh’s momentum as a fast-growing developing economy pursuing soonest possible graduation to upper middle income country status,” the MPS added.

The central bank has decided to release MPS on a yearly basis rather than in a half-yearly fashion.

Regarding announcement of one-time release MPS, the governor said the BB released MPS with aggregate monetary programme from the beginning of the fiscal year subject to such mid-course modifications in policy rates and statutory cash reserve and liquidity ratios as found necessary.

“So there remains no significance to release the second half-yearly MPS separately,” the BB governor said while replying to a query.

The BB projects 8.20 per cent GDP (gross domestic product) growth for FY ’20, while the average inflation at 5.50 per cent in June 2020 in line with the national budget projection.

The policy rates, including CRR (cash reserve requirement), SLR (statutory liquidity ratio), Repo, and Reverse Repo, remained unchanged for this fiscal year, according to the MPS.

The central bank, however, fixed domestic credit (DC) growth target at 15.9 per cent for FY ’20 while the targets for broad money (M2) supply and reserve money (RM) have been projected at 12.5 per cent and 12 per cent respectively.

In the MPS, the central bank fixed private sector credit growth target at 13.20 per cent and 14.8 per cent respectively for the first half (H1) and the second half (H2) of the FY ‘20 while the public sector credit growth target has been set at 25.2 per cent and 24.3 per cent respectively.

“Credit growth projected for the public sector looks much bigger than for the private sector because the latter is much bigger (7.3 times) in absolute size,” the BB governor explained.

The lower private sector target came against the backdrop of falling trend in such credit growth in recent months mainly due to the liquidity pressure on the market.

The private sector credit growth came down to 11.3 per cent in June 2019 on a year-on-year basis from 12.16 per cent a month ago, the BB’s latest data showed.

This growth was 5.21 percentage points lower than the BB’s target of 16.50 per cent for the H2 of FY ‘19.

High non-performing loan (NPL) burdens cited by MPS as a reason for downward stickiness of lending interest rates is itself an outcome of poor intermediation efficiency.

“Taking proactive recourse to bankruptcy proceedings (like in India) may prove to be the most effective option for banks in bringing down NPLs, with the fear of losing control of the bankrupt’s own business to a court appointed receiver acting as potent deterrent of willful repayment default,” it noted.

The central bank listed a couple of near-term domestic risk factors that may hamper attainment of the monetary programme objectives in the FY ’20.

The MPS also said recent upward revision of fuel gas prices and new VAT law implementation have already affected prices in the beginning of this fiscal, and linger effect over the coming months remains to be seen.

“If the monsoon flood now engulfing wide expanses of the country prolongs or recurs, agricultural output losses can be significant,” the BB warned.

It also said ongoing trade war and geopolitical tensions are uncertainties on the external front that may or may not impair attainment of the BB’s monetary programme outcomes for the FY ’20.

“The scopes for developing economies like Bangladesh may be created from such uncertainties in the coming months,” the BB governor noted.

Among others, BB Advisers Allah Malik Kazemi, SK Sur Chowdury, Bangladesh Financial Intelligence Unit (BFIU) Head Abu Hena Mohammad Razee Hassan and Deputy Governors of the central SM Moniruzzaman and Ahmed Jamal spoke on the occasion.