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The Bangladesh Bank should raise the private sector credit target and review other major goals by conducting the mid-term review of the monetary policy statement for 2021-22, said analysts.
They also urged the central bank to withdraw the lending cap and depreciate the taka further against the US dollar in order to keep the financial sector stable.
The central bank carries out a mid-term review of the monetary policy in the middle of a fiscal year and makes it public in January. But, such an exercise has not been carried out although seven months have passed in the current fiscal year.
Md Habibur Rahman, acting chief economist and an executive director of the BB, said that the central bank would analyse the achievements of the monetary policy targets this month.
“We will also revise the targets, including the private sector credit growth if required,” he said.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, said that the central bank should expand the credit growth by 1-1.5 percentage points in a bid to give a boost to the confidence of businesses amid the coronavirus pandemic.
The central bank has set a credit growth target of 14.80 per cent for the fiscal year, ending in June. The growth stood at 10.68 per cent in December against the goal of 11 per cent for the first half.
“The central bank should lay emphasis on implementing the stimulus packages, especially the schemes dedicated to small and medium enterprises,” said Fahmida.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, thinks the private sector credit growth will go up automatically in the coming months given the upward demand for loans from businesses as the economy recovers. He called for a withdrawal of the lending cap as the interest rate on deposits is going up due to the rising inflation.
“The interest rate on deposits may go up to 7-8 per cent soon and this will subsequently create a pressure on banks’ lending operation.”
As per the government decision, banks disburse loans, except credit card loans, at a 9 per cent interest rate.
Mansur also recommended further depreciation of the local currency against the US dollar.
The central bank has already started devaluing the taka in phases, but Mansur said the current pace is not enough given the escalation of import payments and the downward trend of remittances.
The inter-bank exchange rate of the taka stood at Tk 86 per dollar yesterday in contrast to Tk 84.80 a year ago, according to data from the BB.
The majority of banks are now suffering from a shortage of US dollars, prompting the central bank to inject dollars from time to time. Banks purchase the greenback in exchange for the taka, squeezing money circulation.
The growth of reserve and broad money stood at 6.53 per cent and 9.62 per cent in December, down from 21.30 per cent and 14.25 per cent, respectively.
The reserve money (RM) is the base level of the money supply and it is also the high-powered component of the money supply. The broad money, which is multiple of RM, depends on the volume of the RM as well.
Because of the contracted money supply, inflation would not increase to a large extent, according to Mansur, a former official of the International Monetary Fund.
General inflation rose to a 14-month high of 6.05 per cent in December last year, with non-food inflation reaching 7 per cent, a six-year high, and food inflation to 5.46 per cent, the highest in six months.
Salehuddin Ahmed, a former governor of the central bank, says that there is no need to create a hue and cry about inflation.
“We should not follow a tight monetary policy for the sake of the private sector.”
(TDS)
