Private sector credit growth target 14.80%
Several risk factors to attain monetary policy program objectives, says BB Governor
The Bangladesh Bank (BB) on Wednesday unveiled an expansionary monetary policy, lowering borrowing costs through slashing different policy rates to boost money flow to make a turnaround in the corona-ravaged economy.
The BB reduced the repurchase rate by 50 basis points to 4.75% from 5.25%, reverse repo rate by 75 basis points to 4% from 4.75%.
It also reduced the bank rate from 5% to 4% in the yearly monetary policy framed for the current fiscal year.
Bangladesh Bank (BB) has projected domestic credit growth ceiling at 19.3% for the fiscal year 2020-21 (FY21), predicting a 14.80% credit growth for the private sector and 44.4% for the public sector.
“All these rates change will be effective soon,” the BB said in its monetary policy statement (MPS) for the current FY 2020-21
"The prime objectives of the monetary policy stance and monetary programs for FY21 are the recovery of the economy from the adversity of the Covid-19 pandemic and rehabilitation of the production capacity of the economy, including the restoration of the normal livelihoods of the people along with maintaining the dual goals of price stability and quality growth," reads the monetary policy.
Governor Fazle Kabir said that despite a countrywide unprecedented lockdown from 26 March to 30 May, 2020 owing to the outbreak of Covid-19, uninterrupted banking and mobile financial services for all in the country had been effectively maintained by the BB.
He said the central bank had taken a series of instant and proactive policy initiatives to minimize any possible economic losses due to the Covid-19 pandemic.
“BB has used its available monetary policy instruments, like cash reserve ratio (CRR), repo facility (interest rate and tenor), refinancing facility and other monetary conditions easing initiatives to inject necessary liquidity in the market. These include the recent formation of a credit guarantee scheme to support cottage, micro and small enterprises that lack adequate assets to pledge for bank loans,” he added.
He said all these policy measures had been taken to help generate employment opportunities in agriculture, industry and services sectors so that the Covid-19 pandemic related economic losses could be recovered fast.
“As a part of BB’s expansionary monetary policy stance and supporting preparedness for additional demands for funds, this MPS is proposing a further cut in the overnight repo rate from 5.25% to 4.75% and a reduction of reverse repo rate from 4.75% to 4% , ensuring the availability of less costly funds for banks and rationalizing the policy rates’ corridor (the gap between the repo and reverse repo rates),” he added.
Moreover, he said, the bank rate which had remained unchanged for the last 17 years (since 2003) was also being considered to be reduced from 5% to 4% to rationalize it with the current interest rate regime and all these rate changes would be in effect soon.
Fazle Kabir said there were several risk factors to the attainment of FY21 monetary policy program objectives mainly arising from the ongoing Covid-19 pandemic, seasonal floods, and international sluggish economic and volatile price situations, resulting in slower than expected economic activities, formation of unexpected commodity price bubbles, and building-up of undue bad assets of banks.
BB would remain fully engaged and vigilant in monitoring and taking timely action where necessary, he added.
Private sector credit growth was 8.6% in the last fiscal year. In the last fiscal year the total lending by the country's banks to the private sector was Tk87,016 crore .
Besides, the policy also mentioned that broad money circulation would rise by 2.9% points to 15.6% at the end of June of FY21 from the 12.7% at the end of June of FY20.
Economists, however, noted that the policies of the central bank would increase money flow.
In a written statement on the monetary policy, BB Governor Fazle Kabir said, ‘It is clear the monetary policy stance and monetary programs for FY21 are expansionary and accommodative.’
The prime objective was to bring back economic activities to normalcy as they were before the coronavirus outbreak, keeping inflation under control, the BB governor said.
To support the targeted 8.2% GDP growth, the credit to the private sector would be adequate, Kabir said.
However, former Bangladesh Bank governor Salehuddin Ahmed said that private sector credit growth target would not be achievable.
He said the policy was an ordinary monetary policy which did not have specific guidelines to revive the economy.
Salehuddin Ahmed said monetary policy should not be announced for the entire fiscal year, but for six months.