Dhaka, Bangladesh (BBN) – The central bank of Bangladesh unveiled on Tuesday an inclusive half-yearly monetary policy that, it hoped, would help attain higher economic growth and keep inflationary pressure under control.

“Financial inclusion is a key feature of the new monetary policy,” Bangladesh Bank Governor Atiur Rahman told reporters in the capital, Dhaka.

Around 25 percent of the total population is still outside of the financial services and do not go to banks to take any service, the central bank chief said after unveiling the monetary policy at the central bank.

“We’re trying to bring those people under the country’s banking system by providing new policy supports,” he said referring to the central bank’s latest initiatives to help farmers open accounts with the state-owned banks with a nominal deposit of BDT 10 each.

The central bank will soon announce a small and medium enterprises (SME) policy to facilitate the sector, Mr. Rahman added.

“We’ve formulated the second half-yearly monetary policy of this fiscal aiming at attaining a sustainable, high and broad-based economic growth in an unfolding internal and global situations, while keeping inflation at a tolerable level,” the central bank chief noted.

The governor said successful triggering of broad-based growth with supportive monetary and fiscal stances would help alleviate the risks of inflationary pressure buildup.

The central bank promised to continue with the existing ‘accommodative’ monetary policy during the second half (H2) of the fiscal 2009-2010 (FY10) in line with the stakeholders’ recommendations.

Top two trade bodies – the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) – earlier recommended that the central bank continue with the existing accommodative monetary policy for the next six months of FY10 to help achieve maximum economic growth.

“….the prevailing supportive monetary conditions will be continued in H2 FY10 to facilitate the recovery in exports and new investments taking firmer roots,” the BB governor said.

The BB’s monetary and credit policies will continue to support targeted programs, pursuing fuller financial inclusion of the economic activity segments, including agriculture and SMEs and population segments under-served by the markets, towards fostering inclusiveness of economic growth, he added.

The central bank in its monetary policy projected a further rise in the country’s Consumers Price Index (CPI) inflation on point-to-point basis in the coming months of this fiscal. However, it expressed the hope that the 12-month average CPI would be within the budgetary target by the end of FY10.

Food and non-food commodity prices in the global market have firmed up with up-trend in many cases, the new monetary policy said. That is why the domestic prices of food grains are holding firm even in the harvesting seasons, it added.

“….the fluctuation of point-to-point CPI inflation looks set to be somewhat on upward bias in the coming months,” the central bank said.

The country’s CPI inflation increased slightly to 6.71 percent on a point-to-point basis in October last from 4.60 percent in September because of the rise in prices of both food and non-food items.

Accordingly, the 12-month average CPI inflation instead of declining would creep up in the second half of this fiscal. But it is expected to remain within 6.5 percent range by the end of FY10, as projected by the BB earlier.

“The inflation expectation will cool down if the government keeps supply side stable,” the central bank chief said, adding that the government has already taken decision to restart open market sale (OMS) of rice along with importing essentials.

The central bank has advised the commercial banks and non-banking financial institutions (NBFIs) to be cautious while investing in the real estate sector.

“Activities of developers in residential and commercial building construction have spread to other urban centers and tourist sites besides the capital city, with the growing workers’ remittance inflows strongly fuelling demand and creating bubble-like price pressures in the real estate markets,” the BB governor said, adding that banks and NBFIs need to be careful in handling this bubble-like asset price situation.

About the overall performance of the economy, the governor said the domestic demand remains robust, well supported by growing remittance and budgetary stimulus outlays, including higher social safety net spending.

“….the present outlook for FY10 real gross domestic product (GDP) is much the same as the 5.5-6.0 percent growth projected by the BB earlier which could be brighter with full and timely use of budgetary outlays for projects in the Annual Development Programs (ADP),” the BB governor noted.

Exports in the coming months are expected to regain enough momentum for FY10 with growth to be in double digits as was in the FY09, contributing to manufacturing output growth in the industry sector, the central bank said.

“Overall, barring unforeseen adversities, it will not be unrealistic to expect agriculture sector output growth to match or come close to the strong FY09 performance,” the BB said mentioning different measures, taken by the government as well as the central bank.

In the financial services sub-sector, bank’s lending growth has been slower in the first half of this fiscal but capital market activities have remained buoyant, according to the monetary policy.

The capital market is the part of the service sector, which has been overheated slightly due mainly to higher inflow of remittances in the recent months, Allah Malek Kazemi, the BB’s Senior Consultant, said adding that the Securities and Exchange Commission (SEC) is now working to keep the country’s capital market stable.

“The credit flow to private sector has picked up despite persisting power and gas supply situation. The upward trend may continue in the near future,” Mr. Rahman said.

Private sector credit growth rose to 16.73 percent in November last from 15.42 percent in October 2009, according to the central bank statistics.

“We’ll stand ready to respond promptly with modification in monetary stance required by any exigency in unfolding development in the domestic and external scene,” the central bank chief noted.

Deputy Governor of the BB Ziaul Hassan Siddiqui also spoke on the occasion.

The first-ever monetary policy statement was formally published in January 2006 and the central bank of Bangladesh declared that it would publish it on a half-yearly basis along with a half-yearly policy review.

BBN/SS/SI/AD-20January10-11:50 am (BST)