Analysts termed the new monetary policy statement (MPS) contradictory, saying it lowered policy rate to stimulate demand that might be dampened by the slashing credit growth.
In sharp contrast, bankers welcomed the new monetary policy, terming it expansionary as the policy rate cut will make credit cheaper.
The bankers’ reaction came after Bangladesh Bank cut its key interest rate by 50 basis points (bps) to 6.75% and repo rate by 50 basis points to 5.25% after three years in the new MPS for the next six months.
It also announced a downward revision in the private sector credit growth projection to 14.8% from the earlier 15% and public sector credit growth projection to 18.7% from 23.7%.
Former finance adviser to the caretaker government AB Mirza Azizul Islam said the new monetary policy is contradictory to the sense that the central bank in one hand reduced the policy rate intending to raise demand, and on the other hand, trimmed credit space.
“Lack of demand is the main concern right at this moment. Somehow, private sector people are not interested in borrowing fund as they may be considering present investment climate. So, it does not matter whatever the private credit growth target is. From that perspective, I do not mind about the BB target.”
On inflation, he said another objective of the monetary policy is mainly to control inflation. “But at this moment, inflation is on the declining trend due to drop in prices of global commodities and oil. So what is needed is to encourage people to borrow money and invest.”
In his reaction, Managing Director of Meghna Bank Mohammed Nurul Amin said policy rate cut signals the market that the more the credit, the more the demand.
“Though the governor termed the monetary policy cautious and supportive, we will say it is an indication of expansionary policy.”
He said the public and private sector credit growth set at 18.7% and 14.8% respectively indicates that the government will borrow from banks.
“As a result, the banking sector will be crowded, but we are not worried about it since banks are awash with excess liquidity, which will enable us to address the demand properly.”
He said lower key rate will discourage banks from investing in bonds through reverse repo.
