The Bangladesh Bank (BB) targets to bring average inflation down to 7%, using the 1995/96 base, in the first half (July 2013-December 2013) of the current fiscal year, in order to ensure that credit growth is sufficient to stimulate inclusive economic growth.
The stance was stated in the monetary policy statement, announced by the central bank on Thursday, for the first half of the current fiscal year. It is based on an assessment of global and domestic macroeconomic conditions and outlook.
The statement says the inflation target could be in the range of 6.0%-6.5% using the 2005-06 base.
The central bank said the risks to the inflation target stem partly from likely wage increases in both the public and private sectors which will further add to existing aggregate demand pressures.
The BB also aims to contain reserve money growth to 15.5% and broad money growth to 17.2% by December 2013.
The bank has kept the repo rates and reserve requirement ratios unchanged due to growing inflationary pressures over the past several months.
The bank said strengthening credit and debt markets would remain a key focus for the July-December period for effective transmission of monetary policy.
The space for private sector credit growth of 15.5% for December 2013 and 16.5% in June 2014 has been kept well in line with economic growth targets and higher than the average of ‘emerging’ Asian economies,” it says.
This level is sufficient to accommodate a substantial rise in demand for credit if it materialises, though actual private credit growth may not use up all the space in the monetary program as it will depend on the investment climate in the lead-up to the national elections.
The monetary policy stance also aims to preserve the country’s external sector stability.
“BB will continue to support a market-based exchange rate while seeking to avoid excessive foreign exchange rate volatility,” the statement says.