Updated on : 01-08-2017

Unveiling a 'growth oriented' half-yearly monetary policy statement (MPS), Bangladesh Bank (BB) has projected domestic credit growth ceiling at 15.8 percent in fiscal year 2017-18 (FY18) accommodating 16.3 percent credit growth in private sector and 12.1 percent in public sector.

"In one word, the new monetary policy is growth oriented and stability focused for creating employment opportunities," BB Governor Fazle Kabir said, announcing the monetary policy for July-December 2017 at a press conference at the central bank here today.

He said the policy direction for the first half (H1) of the FY18 is to pursue a stance that would provide sufficient monetary accommodation for attaining the government's FY18 GDP growth target.

"By balancing the output and inflation risks for the economy over the next one year, the program will target a monetary growth path aimed at keeping average inflation at around 5.5 percent," he added.

He mentioned that the upward trend of food price component of Consumers' Price Index (CPI) is still continuing, which has resulted from the flash flood related crop losses in the northeastern haor regions at the end of the last fiscal year 2016-17 (FY17) .

He expressed the hope that the average inflation will remain at a comfortable level as inflation rate of India has come down at below two percent and oil and other product prices in the international market have been stable and downward.

Broad money (M2) growth for FY18 is set at 13.9 percent, based on the GDP growth and CPI inflation targets of 7.4 percent and 5.5 percent, said the former bureaucrat.

He said BB had adopted the monetary stance for the first half of the fiscal to play a supporting role for achieving the government's inclusive, environmentally sustainable growth goals.

He said the objective of the central bank's monetary policy is to keep the CPI inflation stable alongside supporting the output and employment growth.

Balancing the growth and inflation risks in Bangladesh against the backdrop of a subdued global inflation outlook and tightening monetary policy conditions in the advanced economics, Fazle Kabir said, BB has decided to keep policy rates unchanged at its current level, with repo rate at 6.75 percent and reverse rate at 4.75 percent.

"But the policies and interest rates will be adjusted immediately when needed," he added.

The BB governor said, like in 2016-17 financial year, if the 19 percent revenue collection growth continues in this fiscal, the delay in implementation of the new VAT law will not hinder implementation of the MPS in the current fiscal as the government has declared to review the allocation of the national budget.

He, however, observed that the rate of inflation maintained 5.44 percent at the end of the last fiscal (FY17) which is lower than the previous fiscal 2015-16 when it was 5.92 and lower than the targeted limit of 5.80 percent for the fiscal FY17.

Due to the decline in the government's borrowing from the banking channel (public sector credit growth declined by 16.2 percent instead of targeted 16.1 percent), the private sector credit declined to 16 percent in May 2017, he added.

Fazle Kabir pointed out two issues - high interest rate of saving certificates and downward remittance flow - are likely to hinder the implementation of the MPS for the first half FY18.

He said the high interest rate of national saving certificates is increasing the fiscal cost of financing and disrupting the bond market development, which is much needed for mobilizing long-term savings for infrastructure and other long-term investments.

He said fall in the demand of Bangladeshi manpower abroad is not the only reason for the downward trend of remittance inflow. Rather, new regulations for remittance senders of the Middle Eastern countries have responsibilities for this.

He said the central bank's motivational efforts and supervisory surveillance will continue to focus on inclusive and productive use of credit with particular attention to adequacy of credit flows to agriculture, SMEs and environmentally benign "green" output initiatives.

(Courtesy: Bangladesh Sangbad Sangstha )