BB announces monetary policy by cutting interest rate

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Dhaka, Jan 14: The Bangladesh Bank (BB) announced the half-yearly monetary policy, targeting a total domestic credit growth of 16.5 percent and shifting its focus to a ‘selective easing’ stance to spur economic growth and keep inflation at a comfortable level on Thursday.

The interest rates have been fixed 6.75 per cent in repot by cutting 0.50 percent and 4.75 per cent in reverse report.

In the monetary policy statement (MPS) for the first half of the current financial year, the central bank chalked up a plan to provide Tk 865 billion in credit to the private sector from banks in the current financial year (FY-2015-16), up by 15 percent from that of last FY.

Besides, in percentage point, the government will receive 23.7 percent higher credit than that of last FY, the MPS stated.

The government in its budget for FY 16 targeted to borrow Tk 385 billion from banking sector. In last FY, the government chewed up relatively low credit from banks as flow of finance was adequate from non-bank sources like sales of saving certificates.

Comprising both private and public sectors credit, the MPS targets a total domestic credit growth of 16.5 percent. In last FY, the overall domestic credit growth was estimated at 13.1 percent. According to BB estimate, the private sector in FY 15 received 13.6 percent higher credit than in FY 14.

The BB has set the growth target in broad money supply at 15.6 percent to materialise the MPS targets.announcing report

Announcing the monetary policy, Governor of the bank Dr Atiur Rahman said, “If the 13.6 percent credit growth to private sector could endow the economy with 6.5 percent growth in last FY, a 15 percent growth target appears to be adequate to support the government’s GDP growth target of 7 percent in the current FY.”

He said the triple objectives of the monetary programme are to facilitate government’s target of economic growth by investing in infrastructure projects, ensuring flow of credit to productive persuades; and at the same time, containing inflation considering the purchase capacity of low-income segment of people of the country.

“In other words, the MPS objectives will finally reflect in improving living standard of citizen of the country, supporting economic growth and generating employment,” he said.

The governor also announced two special low-cost credit programmes, financed by World Bank (WB) and the BB, amounting to $500 million in order to promote manufacturing projects and green initiatives in the export-oriented textiles, apparels and leather sectors.

Dr Rahman said women-led enterprises in the SME (Small and Medium Enterprises) sector will get priority in getting loans from both low-cost WB and BB funds and from local banks.

The governor said the country’s economy maintained strong status and it has no immediate sign to be struck by any external or domestic shock.

“This MPS is basically an accommodative policy to facilitate what is good for the economy and rejecting what is bad,” said Dr Rahman, while replying to questions from journalists.

He said the central bank has shifted its focus of monetary programme from conventional stance like expansionary and contractionary types to what it calls ‘selective easing’ programme.

“This type of monetary programme is better for developing economy,” he said.

The governor said overall inflation in the country remained at a tolerable level of 6. 25 percent and it is very close to the FY 16 budgetary target of 6.2 percent. “We will not let it loose until economy demands more investment with viable sign of further progress,” said the governor.

He said the domestic demand due to a strong party of the country’s consumers while external link of the economy is still at a level that can overcome shock, if arrives suddenly.

BB’s Chief Economist Biru Paksha Paul said the country has strong reserves of foreign currencies which may grow slowly in the current FY due to high trade deficit caused by lower export income against higher import cost.

The current account balance shortfall at the end of June 2015 stood at 1.6 billion, which was lower than 1 percent of the country’s Gross Domestic Product (GDP) of nearly $194 billion.

“At the end of June 30 2016, the current account shortfall may stand at 3.5 billion and the economy can handle it,” he said.

The MPS stated that the BB monitors the recent rise of non-performing loans with concern and care. About Basic Bank loan scam, the BB governor said they have done everything under their jurisdiction.

Regarding a question on rise of inequality in the society amid average 6.0 percent moderate rate of economic growth, BB deputy governor SK Sur Chowdhury said this has been one of the main characteristics of the capitalism.

“However, in our country, the rate of inequality is reducing as the economy performs well,” he said.

Deputy Governor Abu Hena Razee Hassan and BB’s change management advisor Allah Malik Kazemi spoke, among others, on the occasion.

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