The new monetary policy announced yesterday continued its dual objectives of maintaining inflationary pressure and supporting the economic growth, but left rates unchanged.
Bangladesh Bank (BB) has taken a slightly tight monetary policy for the current fiscal year to cut loan flow into the unproductive sector.
Announcing the monetary policy for the first six months of the current fiscal year, BB Governor Atiur Rahman said: "The monetary policy emphasised keeping the price level stable."
"BB's monetary policies will continue pursuing the dual objectives of maintaining price stability and supporting faster economic growth and poverty reduction," said the central bank's Monetary Policy Statement (MPS) for July-December 2010.
In his reaction to the monetary policy, World Bank's senior economist Zahid Hussain said: "This is a cautious monetary policy stance. In the context of the targeted 13.2 percent growth in nominal GDP, the broad money growth target of 15.2 percent is an indication of caution."
The WB economist said a rise in import payments and increased deficit in the financial account are projected to reduce the balance of payments surplus, and will help cut the need for US dollar purchases to limit the appreciation of taka.
If BOP surplus does not shrink, the challenge for monetary policy will be to make adjustments in the growth of net domestic assets in order to avoid overshooting the broad money growth target, he said.
"Fortunately there is cushion, particularly in the assumed 25.3 percent growth of credit to the public sector."
The central bank has targeted slashing the private sector credit growth by around 5 percentage points to rein in inflation. Also, the BB aims at cutting reserve money by 4 percentage points by June next year.
However, the credit growth target for the public sector has been increased by 15.9 percentage points by June 2011 compared to June this year.
Also, the MPS has indicated increasing different policy rates such as cash reserve requirement, repo, and reverse repo interest rates for controlling credit.
Inflation had been low till June last year, but from July last year it continued to rise. Though inflation fell slightly in the recent months, experts think it may go up again from this month.
The monetary policy has set the private sector growth rate at 16 percent for June 2011, which was 21.1 percent in June this year. However, the credit growth target for the public sector for the next June has been set at 25.3 percent. It was 9.4 percent in June this year.
In a bid to contain inflation, reserve money growth target has been set at 13 percent for the next June, while it was 17.1 percent this June.
The governor said, along with taking steps to increase availability of loan in all productive sectors, Bangladesh Bank will discipline management of money and credit markets for maintaining stability.
"Field level surveys will be undertaken to ascertain the extent, if any, of leakages from bank credit for declared purposes, including agricultural and SME loans," said the MPS.
About inflation, it said, the anticipated upward revisions of user prices of gas, fuel oil and power are the likely main internal influences on domestic inflation in Bangladesh in fiscal 2011.
Source: thedailystar.net
