New monetary policy to stabilise inflation, says Governor

New monetary policy to stabilise inflation, says Governor

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Keeping in continuity of earlier policy Bangladesh Bank (BB) declared the new monetary policy for the first half of FY16 that helpful for investment.
New monitory policy stance for the first half of FY 16, will stabilise inflation at moderate level targeted in the national budget and other macroeconomic policy pronouncements.
“It would support the public policy objectives of inclusive, environmentally sustainable, and maintain order lines in transition of domestic currency exchange rate to new market equilibriums in response to pick up in investment and consumption driven imports vis-à-vis trends of export receipts and other inflows,” governor of BB Dr Atiur Rahman said.He was addressing at a press briefing while declaring the new monetary policy at the auditorium of BB at Motijhil yesterday.
Chief economist of BB Dr Birupasha Paul, Deputy governor of BB SK Sur, Nazneen Sultana, and change manager adviser Allah Malik Kzemi spoke the occasion.
Bangladesh’s current level of inflation at 6.4 per cent is already moderate. The government’s 6.2 per cent target for the FY16 implies that we need to go for further reduction by slightly pressing the brake on the price level.
Dr Atiur said now if money supply remains on the current stance that is cautious in general but at the same time generously accommodative for growth generating pursuits, achieving that target will not be difficult.
However he said the financial stability concerns attained high priority following the global financial crisis in Bangladesh as everywhere else worldwide.
The monetary policy said the government is likely to take more money from the banking system as reflected in the last budget and Bangladesh Bank has kept sufficient provisions for that.
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 2.5 per cent in the last fiscal year whereas Bangladesh bank projects a positive growth rate of 23.7 per cent for the current fiscal year.
In contrast, private sector credit growth has always remained stable particularly since the fiscal year of 2013 when the figure was 10.8 per cent and has stood higher at 13.6 per cent in the FY 15. All these figures were coupled with 6 plus per cent economic growth.
“If the last fiscal year’s 13.6 per cent credit growth could endow the economy with 6.5 per cent out put growth, a provision of 15 per cent private credit growth appears to be adequate to support 7 per cent out put growth for the current fiscal year.”
In the FY 16 BB will continue with the existing stance that is cautious overall but clearly accommodative in supporting productive pursuits.
Commercial banks have been motivated and supported in extending loans to the productive and vulnerable sectors at lower interest rates. Green projects will avail loan at a lower rate and so will export promotion activities
He said a fund for USD 500 million will created to support medium and long term projects, especially environmentally responsible investments at lower interest rates.
BB extends low cost funds to promotes women entrepreneurship, skill building projects, and energy expansion initiatives.
BB has so far disbursed Tk 140,000 million under refinance schemes to support above sub-sectors. It may be noted that the export Development Fund (EFD) has been increased to USD 2 billion from only USD 100 million in 2006. Peasants get low credit and so do sharecroppers. Thus, BB has adopted selective easing through judicious variations of interest rates.
“If taken together, the productive sectors are accessing low cost financing and hence contributing substantially to the supply side capacity of the economy.”
The objective of bringing down 12-month average CPI inflation under 6.5 per cent besides keeping it downward edging was attained by May 2015, coming down further to 6.4 percent in June 2015.
However, point-to-point headline CPI inflation edged up slightly to 6.25 percent in June 2015 from 6.19 percent of May. Non-food, non-fuel core CPI inflation has also remained upward edging in May and June, indicating that the task of bearing down on inflation expectations is not yet over.
Infrastructural inadequacies impeding investments, tepid global output growth, and disruptions to economic activities from political turmoil kept FY15 credit growth from domestic banking system at 10.4 per cent up to May 2015, much below the 17.4 per cent growth projection for the entire FY.
BB governor said domestic credit growth is expected to pick up somewhat in June, but is likely to remain under or around 11 per cent; particularly as growth of credit to public sector remained negative up to June.
Credit growth to the private sector is estimated to remain around 13.6 percent by June, against the initial projection of 15.5 per cent. It should be noted however that both public and private sectors have drawn upon financing from local non-bank sources and external sources as necessary, suffering no financing constraint.
He also said the estimated 6.51 per cent real GDP growth attained in FY 15 is substantially higher than the preceding year’s 6.06 per cent growth and in line with BB projections; although lower than the initial target mentioned in FY15 national budget.
BB governor said growth performance would clearly have been better had the economy not faced the disruptions from political unrests.
Sustained GDP growth for several years at rates well above the global output growth rates enabled Bangladesh to cross two important milestones in FY15.
We have therefore been taking care in adopting cautious, restrained monetary stance ensuring adequacy of credit growth but at the same time avoiding undue excessive expansion, he added.
BB has of course no disagreement whatsoever with the desirability of transition to a higher growth trajectory for Bangladesh economy; which is why BB’s monetary and financial policies provide proactive policy support for financing of all productive initiatives, large or small, in all sectors. The export sector is accessing low cost foreign exchange financing from BB’s USD2.0 billion Export Development Fund (EDF).
Non exporter manufacturing undertakings are also being allowed access to low cost long and short term external financing for import of capital equipment and production inputs.
We believe that all these policy measures facilitating output initiatives accommodated in BB’s FY16 monetary program and its first half of FY16 monetary policy stance will support and advance the momentum of inclusive, equitable and environmentally sustainable growth, further consolidating inflation moderation and macroeconomic stability, Dr Atour said.
The FY 16 monetary programs projects 16.3 per cent domestic credit growth against preceding year’s 10.4 percent actual; to accommodate 7.0 per cent real GDP growth with 6.2 per cent inflation.
Within this, private sector credit growth is projected to grow by 15.0 percent in FY 16, against 13.6 percent of FY15. The projected 23.7 percent FY 16 public sector credit growth looks high mainly because of negative growth in FY15.
Broad money (M2) growth is projected at 15.6 per cent for FY16, against actual 13.1 per cent of FY15. BB’s reserve money growth is projected at 16.0 per cent in FY16 against actual 14.3 percent of FY15.
Stronger domestic investment momentum will cause FY16 net foreign asset growth to slow down to 5.2 per cent; the momentum of foreign exchange reserve growth will also slacken in FY16, he noted.
Deficit in BOP (balance of payment) external current account balance will also widen, but at around two percent of GDP will cause no major concern, he added. – Staff Reporter

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