Editorial
BB's monetary policy guidelines
Implementation entails close cooperation with the banks
The newly announced half-yearly monetary policy of the central bank has evoked mixed reactions. Before going into these, it has to be pointed out that the six-month duration of the policy has both an advantage, as well as a disadvantage, the disadvantage being that the policy can be tentative.
The built-in flexibility in a half-yearly policy provides for a review and readjustment, or even for changing gear in light of objective economic circumstances past the half-way point of a fiscal year.
Now, coming to the reactions of the experts to the policy: at one end, it has been viewed as being in line with the national growth objective without fuelling inflationary pressures. The implication is that it's pragmatic. Quite clearly, the monetary policy ties in with the government's GDP growth target of 6.7 per cent and seeks to contain consumer price index(CPI) at 6.5 per cent.
At the other pole of reaction, it has been regarded, to put it mildly, as 'cautious' with a potential of being contractionary. We, however, prefer to adopt cautious optimism at this stage being focused on the issues of implementation.
Credit flow to the private sector by the end of the current fiscal is envisaged at 16 per cent whereas it was 21.1 per cent in June last fiscal. That means private sector faces a credit squeeze. This is necessitated, according to the central bank, by an escalation of credit flow into unproductive sectors like buying and building houses, land purchase et all. Money has flowed into consumerism dubbed as 'casino' style living, whatever that means!
Of course, the aim of the government and the central bank would be to find ways to increase investment in the productive sectors such as energy, infrastructure, SME to name some obvious areas. But the banks tend to tread where the profit is. Yet sustainable and long term profits can come largely from productive investments. So, there is a question of judicious liquidity management on the part of the central bank as well as the other banks.
In a parallel move, the BB has set higher targets to bank roll agriculture sector. Private and foreign banks are to contribute significantly to the agri-lending operations. It's good to know that foreign banks are thinking of branching out to rural Bangladesh for the purpose.
In the domain of public spending which is set to increase, the government needs to exercise caution and control. It is important to note that keeping inflation in check is not entirely dependent on Bangladesh Bank. The 'supply side' of the economy will have to be strengthened along with critical mass of local investment.
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