BB unveils monetary policy statement
The Bangladesh Bank (BB) on Wednesday unveiled a cautious monetary policy focused on achieving 8.2% economic growth in the current fiscal year, claiming a surplus of liquidity in the banking sector to fund the private sector.
In the new monetary program, the central bank lowered the target of credit to private sector to 14.80% for the current 2019-20 fiscal from 16.50% set for the second half of the last fiscal year.
The policy projected 24.30% credit growth for the public sector.
Actual credit growth to private sector was 11.29% and 21.10% for public sector in January-June, according to BB data.
Governor Fazle Kabir unveiled the monetary policy statement (MPS) at a press conference held at the central bank headquarters in the city. Senior BB officials were present at the program.
Fazle Kabir said the central bank reviewed the budgetary investment requirements before setting up the fresh credit growth targets to ensure sufficient flow of finance to public and private sectors to enhance the economic expansion.
"This is 'a cautiously accommodative' monetary program in order to help the government achieve 8.2% GDP (gross domestic product) growth target and contain inflation at 5.5%," Fazle Kabir said.
He said that the central bank thought the 14.80% growth in private sector credit would be enough to raise investment towards achieving the targeted GDP growth.
He said the BB would pursue its policy instruments for keeping inflation at 5.5% as projected by the government in the budget for 2019-20 fiscal.
Fazle Kabir said this MPS would be in action for the entire fiscal, from July 1, 2019 to June 30, 2020. He said the BB decided to enforce one monetary program for each financial year, effective from the current fiscal, instead of twice.
He said the BB had been announcing two MPS since 2006 — one in January and another in July.
Regarding the capital market, the MPS stated that correctly priced new IPOs (initial public offerings) of healthy and well-managed corporations might bring lasting solution to intermittent volatility at capital market.
It says the newly introduced IPO rules by Bangladesh Securities and Exchange Commission will be instrumental to overcoming manipulation of the market information.
In his speech, the governor, however, didn’t make any comment over the capital market.
Non-performing loans (NPL)
The governor said the NPL would decrease in the last quarter that ended on June 30, 2019 as the central bank pursued banks to enforce policy instruments like new provisioning guidelines for the defaulters. Banks were also advised to avoid imprudent lending so that no new NPL was generated.
Till March 2019, the NPL rose to Tk110,874 crore or 11.87% of total loans and advances of the banking sector. The Banking Regulations and Policy Department of Bangladesh Bank established a Task Force to monitor banks’ NPL.
Single-digit interest rates
Regarding single digit interest rates, the BB governor said the weighted average lending rates of banks came down to 9.58% in June 2019 from 9.95% in the same month of previous fiscal. He said the BB would continue pursuing banks to reduce lending rate to single digit.
Denying the much-talked-about liquidity shortfall in the banking sector, the governor said a mismatch had been detected in liquidity status of banks as some banks had sufficient liquidity while some did not.
Till June 2019, surplus liquidity was at Tk86,816 crore at banks after maintaining CRR (cash reserve requirements) and SLR (statutory liquidity ratio) provisions, he claimed.
The governor said high export earnings, rise in remittance and FDI (foreign direct investment) inflows together eased the liquidity pressure.
"In addition, there is a money market from where a bank can borrow on call to meet liquidity demand, if any," he said.
The governor said the central bank would not consider any change in key-policy rates like repo, reverse repo and CRR and SLR right now as it felt no liquidity crisis existed.
Foreign exchange market
Trashing the possibility of any depreciation of taka against US dollars, the governor said the forex market was stable now with exchange rate at Tk84.50 for one unit of greenback.
"We are comfortable with that. No depreciation will take place right now. However, we are not rigid. Situation will tell us what to do and the central bank will do that for sure," he added.
Incentive for inward remittance
The governor said the central bank recently proposed a monthly ceiling for inward remittance for getting incentive for the approval of the Ministry of Finance.
The proposal came following the government's announcement of providing 2% cash incentive for inward remittance.
"This initiative is aimed at widening scope of exploiting the external resources as cash incentives will encourage remitters to send higher amount of money through banking and other legal channels," said the governor.
Replying to a question on outgoing remittances, the governor said the central bank would include the information distinctly in next monetary programs.
BB to carry out study on informal economy, employment
Replying to a question over the disclosure of employment statistics simultaneously with the country's development, the governor said the BB would carry out employment statistics in its next monetary program.
Admitting the necessity of carrying out study on informal economy, governor Fazle Kabir said, "We will go for conducting the study soon."
BB measures in aid of flood-affected people
The governor said the central bank took initiatives to help flood-affected people across the country by undertaking different programs.
The initiatives include suspension of farm-credit repayment until flood situation improves, fresh credit for farmers and flood-affected people to help implement income generation schemes, relief works for flood-affected peoples from the Corporate Social Responsibility funds of banks.