It is cautionary but flexible to address risks
Bangladesh Bank Governor Fazle Kabir on Wednesday unveiled the Monetary Policy Statement (MPS) for fiscal 2019-20 when domestic credit growth will be 15.9 percent. It is cautionary but enough flexible to address challenges.
Taking separately private sector credit growth has been targeted in the MPS at 14.8 percent while the credit growth for public sector has been estimated at 24.3 percent.
Governor Fazle Kabir unveiled the MPS to reporters in an overcrowded Bangladesh Bank conference room attended by other senior officials of the bank. He told reporters at the beginning that the MPS will cover the entire fiscal year from now as against half yearly statement so far followed over the past years.
“Instead of presenting a half yearly MPS, the yearly policy outlines is a better option that can be reviewed and changes may be made any time when it may be so required,” he said. The governor said the monetary policy stance has been drawn up in the global and domestic economic context to maintain price stability and supporting inclusive and equitable economic growth and exports consistent with the government development goals.
The governor said the monetary policy has been based on 8.2 percent GDP growth and 5.5 percent inflation. The broad money growth has been estimated at 12.5 percent to accommodate domestic credit growth. He said credit growth projected for public sector is much bigger than private sector because of the later’s much bigger absolute size.
Net foreign asset growth is projected at 03 percent but lower than at the end of FY19. The policy statement said banking sector suffered from serious liquidity crisis. Bangladesh Bank stepped up helping liquidity trapped banks that included lowering of CRR from 6.5 percent to 5.5 percent so that banks can retain more cash in hand instead of maintaining deposit with Bangladesh Bank.
The new policy regimes has been adopted, he said taking into account the fear of inflationary pressure, rising commodity prices in the international market and the government’s spending spree on mega projects. There is little change in it from major salient features of last year’s Monetary Policy Statement.
The new target of private sector credit growth is sufficient to achieve the targeted GDP growth. The central bank governor hoped that the private sector would get its expected finance from the banking source as the government has a low demand for bank borrowing.
The import payment registered a 25.5 percent growth in the first 11 months of fiscal 2017-18 from a year earlier. The annual average inflation went up to 5.78 percent in fiscal 2017-18 compared to 5.44 percent a year ago, mainly because of higher import payments for capital goods and food items, the policy statement said.
Higher imports have also put pressure on the country’s trade and current account balance, which has contributed to the depreciation of the local currency against the dollar. The government has taken steps to plug over-invoicing and capital flight.
The country’ trade and current account deficit stood at $17.22 billion and $9.38 billion respectively in the first 11 months of last fiscal year — both record highs. The BB, the National Board of Revenue and the commerce ministry will need to take up coordinated monitoring to avoid the import of needless and luxurious products, he added
The MPS statement came at a time when a couple of near-term domestic risk factors, such as flood, dengue in epidemic form are posing new challenges having the potentials to upset monetary targets.
“If the monsoon flood now engulfing wide expanses of the country prolongs or recurs, agricultural output losses can be significant,” Governor Fazle Kabir said asking for cautions.
Ongoing global trade war and geopolitical tensions are other uncertainties in the external front that may hamper exports and impair attainment of BB’s FY20 monetary program outcomes, the governor added.
The Bangladesh Bank will be closely monitoring the risk factors to attain FY20 monetary program objectives in the light of the new threats and will address them if the need arises.
The BB’s FY20 monetary policy stance and monetary program will cautiously accommodate monetary and credit expansion needs of all productive pursuits, achieving targeted GDP growth poised to push the nation to become a middle income nation, he said.