After overcoming the impact of Covid-19, the demand for investment in the private sector has risen resulting in increased growth of credit.
At the end of July this year, the private sector credit stood at Tk13,52,566 crore compared to Tk11,87,011 crore during the same time a year ago.
Meanwhile, public sector credit also rose by 23.38% to Tk3,19,897 crore in July.
According to Bangladesh Bank's latest data, private sector credit growth was 13.95% in July, which was higher than June’s 13.66% and close to the monetary ceiling of 14.1% set for FY23.
This important indicator of the economy, which had taken a big hit during Covid-19 lockdowns, has turned around.
However, considering it a good indicator, economists feel that it is necessary to analyze how much “real investment” is increasing.
“The cost of raw materials and capital equipment for investment has increased more than before due to the price hike in the international market and the devaluation of taka,” AB Mirza Azizul Islam, economist and former financial adviser to the caretaker government told Dhaka Tribune.
He also said: “The actual investment has not increased much and it is necessary to analyze whether more loans are required to meet the rising import costs.”
Former Bangladesh Bank governor Salehuddin Ahmed said: “If the increased credit flow to the private sector is spent on manufacturing, it will not stoke inflation, it will rather be positive for the country's economy.”
However, he thinks that it is indeed affecting inflation. “We need to reduce lending to the private sector to tame inflation. For this, the lending rate should be raised,” he added.
Data analysis shows that, In January 2022, the growth of credit flow was 11.07%.
However, due to the Russia-Ukraine war, it fell to 10.72% in February. After that, it increased again to 11.29% in March.
In April, it was 12.48%. In May, the growth increased to 12.94%.
It should be also mentioned that the average credit growth of the last fiscal year stood at 10.67%, far below the monetary target of 14.8%, according to the Bangladesh Bank data.
As a part of tightening money flow, the private sector credit growth ceiling was cut to 14.1% for FY23 from 14.8% for FY22, according to the monetary policy statement for the current fiscal year.
In 2020, the pandemic, along with deepening uncertainties, had pushed down the private sector credit growth to around 8%.
According to the latest statistics, the central bank has sold $1.8 billion for Tk17,603 crore in the 47 days of the current fiscal year that began on July 1.