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Private sector credit growth rose to 14.07 percent year-on-year in August mainly driven by a strong US dollar against the local currency Taka, suggests the latest data from Bangladesh Bank.
This growth is 3.5-year high and is very close to Bangladesh Bank’s private growth credit target of 14.10 percent for the current fiscal year.
Economic analysts and bankers think the healthy growth in private sector credit is a good sign for the economy despite the woes created by the Russia-Ukraine war, but they say the high dollar price might have contributed to the growth.
Banks had to pay more for Letter of Credit (LC) settlement because of the high dollar price in the local market, they explained.
The growth nosedived during the corona pandemic as most of the economic activities squeezed in the country. It stood at 11.07 percent in January this year after rising for the previous eight months.
But the growth faltered again and slipped to 10.72 percent in February after the economy had suffered a blow due to the Russia-Ukraine war. In the following three months the growth rate was 11.29 percent, 12.48 percent and and 12.94 percent.
In June, the private credit grew by 13.66 percent year-on-year, while it grew further to 13.95 percent in July and surpassed 14 percent in August.
The central bank projected a 14.80 percent credit growth for the private sector for 2021-22 fiscal year, which eventually ended up with 13.66 percent growth.
“The credit flow in the private sector was on the rise for the last few months, where the government’s corona incentive loans had a great contribution. Moreover, a congenial investment climate was also created in the country with the waning of the corona crisis,” said Dr Ahsan H Mansur, executive director of Policy Research Institute (PRI).
He said investors came up with a new investment plan after the Padma bridge and with the news of the opening of metro rail, Karnaphuli tunnel and some economic zones, while banks also responded positively to it.
“As a whole, the private sector has witnessed momentum. The volume of loans has also risen because the importers had to open LCs at a higher cost due to unusual hike in US dollar price,” he observed.
However, he thinks that it is high time to rein in the dollar price, otherwise, the economy may fall into deep trouble.
The dollar price started rising in August last year after a surge in imports after the economy returned to normal from the pandemic-induced slowdown.
In the last one year, Taka shed Tk 20 or 23.55 percent price against the greenback. The Interbank dollar price was Tk 105.35 on Monday, whereas it was over Tk 85 in late September last year.
The private credit growth was 13.20 percent in January 2019 and later it kept falling. The situation aggravated by the onslaught of the Corona pandemic since late March 2020.
It hit the bottom at 7.55 percent in May last fiscal year hit hard by the negative impacts of the corona pandemic, the lowest in the country’s history.
(DS)
