Private sector credit growth got pace in November due to continuously falling interest rate and excess liquidity in the market.
The November credit growth stood at 13.7%, which was 13.2% in October, according to the latest data of the Bangladesh Bank.
However, credit growth was still far below the central bank’s target of 14.3% set for December, 2015 in its current monetary policy for the first half of fiscal year 2015-16.
Bangladesh Bank is going to unveil its new monetary policy for January-June at the last week of this month, setting the credit space below 15% to curb inflation pressure.
The private sector credit growth, however, was projected at 15% for fiscal year 2016 in the monetary policy for July-December of 2015.
Non-food inflation is on the rise which is the main concern of Bangladesh Bank, said a senior economist of the central bank.
The overall month-to-month non-food inflation rose to 7.05% in December from 6.56% in November, the BBS data showed.
Under the circumstances, the central bank is thinking of reducing credit space slightly from 15% that was projected earlier, he said.
The early hints on reducing oil prices and interest rate of national savings instrument by the finance minister will be considered while setting the latest monetary programme as these factors will have impact on inflation, said the central bank Change Management Advisor Allah Malik Kazemi. Last week, Finance Minister AMA Muhith hinted on cutting fuel oil price.
He explained that money flow to people will rise if oil prices and interest rate on savings instrument are reduced.
In this perspective, the central bank will be cautious about money supply in the market, said Kazemi.
On the other hand, bankers in the meeting held on Tuesday in the central bank headquarters demanded taking expansionary monetary programme expanding the existing credit space.
But their demand was turned down, saying that bankers showed very poor performance of credit disbursement which resulted in piling up excess liquidity, said a senior executive of central bank who attended the meeting.
With reference to the meeting, he said bankers were slammed in the meeting for slower credit growth, saying that as banks are still awash with huge excess liquidity there is no need to extend the credit space any more.
Bangladesh Bank has been lowering private sector credit ceiling in its last two monetary policies as the growth failed to reach the target point in line with the projection.
The growth rate remained slower from the year 2013 when the actual credit growth was 10.6% at the end of the year against the projected growth of 15.5%.
The growth rate was also far below 12.3% in June 2014 against the target of 16.5%.
Later, Bangladesh Bank lowered the credit ceiling at 15.5% for FY’15 and 15% for FY’16.
The central bank is now going to revise its credit growth projection at below 15% for FY’16 in its latest monetary policy for January-June.
It is also planing to cut the public sector credit growth from the existing projection of 23.7% as the growth rate is very slow.
The public sector credit growth was negative 4.2% in November against 8% growth projected for the first half of FY’16.
The private sector credit growth got pace at the end of the year due to recovery of the country’s overall economy as well as drop in lending rate, said a senior executive of Bangladesh Bank.