Dhaka-Bangladesh Bank (BB) disclosed the cautious and accommodative monetary policy to boost up private sector credit discouraging non performance loan for July to December, 2016.Governor Fazle Kabir termed the new Monetary Policy Statement (MPS as “Cautious accommodative” maintaining the previous trend of monetary policy.
He was speaking at the MPS releasing programme at the auditorium of Bangladesh Bank.
In responding a question Fazle Kabir said they had taken preventive measure to tackle terrorism financing facilities through banking system. “We had a meeting with managing directors of all bank. They will provide a report by October in this regard.”
He also said BB has directed the banks to conduct special monitoring to protect terrorism financing.
Fazle Kabir said import increased during last few months due to prolong political stability in the country that resulted robust growth of private sector credit. Besides the government started implementation of mega project and capital machinery import increased.
BB governor said private sector credit grew robustly throughout FY16, at 16.4 per cent as of May 16 overshooting the targeted end June ceiling of 14.8 per cent.
However, with government’s belated small net bank borrowing at the closing end of FY16, overall domestic credit growth remained below the targeted path and is likely to be within the 15.5 per cent ceiling by end June 2016.
The MPS said Strong FY16 private sector credit growth and FDI inflows helped the economy attain 7.05 per cent real GDP growth while annual average CPI inflation dipped below the 6.2 per cent target in June 2016; even as the pass through of global oil price decline to consumers was belated and minimal.
BB projected 16.4 per cent domestic credit growth by year to year in FY17, with credit to private sector credit growing by 16.5 per cent and credit to the public sector by 15.9 per cent.
BB said available data (mostly up to May 2016) indicate attainment of almost all key objectives of the monetary program and policies for FY16. Broad money (M2) growth
remained below target ceiling until May 2016 and is likely to remain within the ceiling of 15.0 by end June 2016.
The MPS said downward edging annual average CPI inflation eased to 5.9 percent in June 2016.
But its higher nonfood component is under pressure from wage gains of rural laborers and public employees; offset somewhat by continuing moderate trends of global commodity prices.
This, coupled with proactive management of market liquidity, is expected to keep FY17 CPI inflation at or close to the 5.8 percent target level, new MPS noted.
BB said the declining trends of interest rates in the domestic market will be sustained by strengthened supervisory oversight on efforts of bringing down nonperforming loans.
BB’s policy interest rates will continue to remain unchanged at the current levels of 6.75 and 4.75 per cent, respectively.
Grounded on the growth supportive developmental mandate in its charter, BB’s motivational efforts and supervisory surveillance will continue to focus on inclusive, productive use of credit; with particular attention to adequacy of credit flows to agriculture, SMEs, and environmentally benign ‘green’ output initiatives.
BB would accordingly emphasize on stabilizing CPI inflation. BB’s monetary and financial policies will continue supporting inclusive, environmentally sustainable growth; addressing its developmental role in the longer term risks to macro-financial stability.
In the MPS the central bank aimed to stabilize inflation at a moderate level targeted in the national budget and other macroeconomic policy pronouncements, supporting the public policy objectives of inclusive, environmentally sustainable growth, and stabilizing the market exchange rate of Taka around levels protecting external competitiveness while also facilitating absorption of external inflows in output and investment activities in the real economy.
BB has kept sufficient provisions for the government’s need. The credit growth figures in the public sectors have always been very volatile based on the actual financing needs of the government. It registered a negative figure of 2.4 per cent in May 2016 (Y-t-Y) in the last fiscal year whereas Bangladesh Bank projects a positive growth rate of public credit at 15.9 per cent in June 2017.
Addressing Nonperforming Loans for Intermediation Efficiency Persistent higher nonperforming loans (NPL) levels in Bangladesh than in her peer group countries is a major reason keeping intermediation costs and lending rates downward sticky. Ongoing remedial efforts will be intensified during FY17 in the backdrop of pick up in lending activities.
Risk management and corporate governance practices of banks have been brought under closer supervisory scrutiny, inter alia placing Bangladesh Bank observers in boards of many of the state owned and private banks.
Financial Stability Following the global financial crisis, financial stability concerns attained a high priority in Bangladesh.
Stress testing exercises are now routine practices in Bangladesh as diagnostic and supervisory tools. BB and all other financial sectors, capital markets, the insurance sector, and regulatory authorities in Bangladesh hold regular quarterly consultations toward policy coordination upholding financial stability.
A heightened attention to improve digital safety measures for international reserves has been on the agenda in the wake of the Bangladesh Bank’s reserve heist that happened in early 2016.-STAFF REPORTER