Bangladesh Bank has set a target to push up the private sector credit from a sorry state to 15.5% in the first half of the current fiscal year as it released the Monetary Policy Statement for July-December period on Thursday.
The central bank plan to increase the credit growth, which dipped as low as 11.4% in May this year as compared to 19.7% at the end of FY12 and 18.3% target at the end of FY13, aimed to help achieve the country’s economic growth target for the current fiscal year.
The credit growth is, however, unlikely to put pressure on the inflation as the policy expected it to come down to 7%.
Bangladesh Bank set the targets keeping in mind the on-going political turmoil and the upcoming general election. The monthly average inflation rate in June was 7.7%, well within the reach of the bank’s 7.5% inflation target for the last 2012-13 fiscal.
“This monetary policy will maintain a balanced approach, attaching priority to retaining price stability and ensuring credit flow to productive sectors for promoting economic growth and creating employment,” Governor Atiur Rahman told a press conference at its headquarters in the capital, marking the release of the MPS.
A monetary policy is pursued by the central bank in order to control inflation or support economic growth, and involves controlling money supply and interest rates.
Bangladesh Bank pursued tight monetary policies for two-and-half years, beginning in the first half of 2011-12 fiscal, as the economy faced double-digit inflation. From the second half of the last fiscal, it shifted towards a more relaxed policy, trying to stimulate money growth and private sector credit growth.
The central bank indicated continuing with this trend in the latest MPS.
The monetary policy aimed to bring inflation down to 7% with regard to the 1995-96 base, as well as ensure adequate credit flow to productive sectors, according to the statement.
The policy aims to contain reserve money growth to 15.5% and broad money growth to 17.2% by December 2013. The target for private sector credit growth of 15.5% for December 2013 and 16.5% in June 2014, had been kept well in line with economic growth targets and was higher than the average of emerging Asian economies, the statement said.
It said this level was sufficient to accommodate a substantial rise in demand for credit, though actual private credit growth might not reach this target, as it would depend on the investment climate in the lead-up to the national elections.
The monetary stance assumed that government borrowing from banks would remain around the budgetary target of Tk260bn.
However, repo rates and reserve requirement ratios were left unchanged following the 50 basis point rate cut in January 2013. The statement suggested that the growing liquidity in the banking system meant that an easing of reserve requirement ratios was unnecessary.
The central bank will continue its support towards the share market to keep stability, the statement said.
The policy put a greater focus on improving corporate governance in banks as well as using automation and capacity building to strengthen the central bank’s supervision.
Clear progress would have to be exhibited by any bank with regard to several benchmarks before any recapitalisation, the statement said. These include ceilings on loan growth, and the need to provide regular reporting to Bangladesh Bank on a number of issues, including large loan approvals, single borrower exposure and off-balance sheet items, among others.