Private sector credit growth has jumped to 14.19% in December 2015 on a year-on-year basis, hitting around three years high from 13.7% in the previous month of November.
The credit growth surged above 14% level after a long break due to rising credit demand in the market amid downturn in lending rate.
The growth rate was slightly lower from the target of 14.3% projected in previous monetary policy for July-December and also was about to reach the new target of 14.8% set in the current policy for January-June this year.
The net credit to private sector stood at over Tk6,03,000 crore in December last year compared to over Tk5,28,000 crore in the same period of the previous year.
“The rise in private sector credit growth indicates that money is being used and economy is moving,” said Bangladesh Bank Change Management Advisor Allah Malik Kazemi.
He said: “Though the growth rate is close to the new ceiling projected in the current monetary policy but it may not cross the target.”
He also predicted that if the growth rate even crossed the ceiling that won’t put any pressure for increasing inflation as the domestic credit still remained far lower from the monetary policy.
The domestic credit growth declined to 9.93% in December, down from 10.3% in previous month, against the projected growth of 13.1%, according to the Bangladesh Bank data.
Earlier, on January 2013, the private sector credit growth was 14.8%. The credit demand remained slump from the beginning of that year causing downturn in credit growth.
Considering slower growth, the central bank slashed the credit ceiling in the last two monetary policies. The central bank also cut the policy rate to discourage banks to park money with it.
The Repo and Reverse Repo rate have been set at 6.75% and 4.75% respectively lowering from 7.25% and 5.25% at the latest monetary policy for second half of FY’16, balancing with market rates.
The cut in policy rate contributed to rise in credit growth as the new policy forced banks to utilise money instead of depositing money with the central bank through Reverse Repo, said economist Kazemi.
Though the private sector credit growth saw a high jump, public sector continued to grow with negative trends.
Private sector credit growth worsened again in December 2015 positing a negative growth of 7.82% from negative growth of 4.2% in previous month. The projected growth for December was 8% in the previous monetary policy.
Kazemi explained: “Public sector credit growth remained negative as government is getting adequate money from the saving instrument.”
“Money is flowing towards the government saving instruments due to the sharp fall in deposit rate in banks,” said a senior executive of Bangladesh Bank.
Moreover, banks are reluctant to collect deposits as most of the banks are awash with excess liquidity.
The amount of excess liquidity remained unchanged at the level of Tk1,20,000 crore in December with Advance Deposit Ratio (ADR) at 70% in November, slightly higher from 69% in September last year.
The lending rate came down to 11.18% in December last year compared to 12.32% in January of the same year. The deposit rate also experienced a rapid fall during the year with reaching at 6.34 in December from 7.26% in January, according to the latest central bank data.