Wednesday | 15 January 2025 | Reg No- 06
বাংলা
   
Wednesday | 15 January 2025 | Epaper

Monetary policy fails to create waves

Published : Wednesday, 8 February, 2017 at 12:00 AM  Count : 345
Haradhan Ganguly
As failed to set forth any charisma, monetary policy of the first half of 2016-17 is likely to carry on in the second half of the fiscal year, keeping the key rates and programmes on the financial front unchanged. The central bank believes the existing hallmarks match the expected economic growth and combat inflation risks. However, the monetary policy statement (MPS) rolled out by the Bangladesh Bank (BB) on 29 January carries a note of caution against the emerging risks of a stock market bubble and rising inflation. Despite the economy is running through buoyancy, the newly declared monetary policy is said to be growth supportive yet alerting. BB Governor Fazle Kabir said while declaring monetary policy, "We kept rates and programmes unchanged as they are quite okay to fund the sectors which ultimately help expand economic growth at the expected level."
The private sector credit growth target will remain the same at 16.5 per cent and so will repo and reverse repo rates, both of which are used to controlling inflation, at 6.75 per cent and 4.75 per cent respectively. The BB forecasted that inflation would remain in the range of 5.3-5.6 per cent, whereas the budgetary target was 5.8 per cent. However, the average core inflation (non-food and non-fuel), a traditional measure of underlying long-term inflation, remains elevated at about 7.6 per cent. This indicates inflation can pick up if buffeted by adverse shocks. Besides, global inflation is on an upward trajectory, as we find it from the latest statement of International Monetary Fund.
Commodity prices are expected to rise in 2017 and the oil prices by more than 20 per cent. Non-energy prices are also projected to go up according to some media sources. MPS also asserts it "Looking ahead, the global commodity outlook suggests some upward price pressures may emerge from higher import prices." The upward trends of banks' default loans and the stock market have been identified as possible risks to the economy as well.
Given the pickup in the credit growth, BB's supervisory vigilance on lending efficiency and risk management in the financial sector will continue to be strengthened with particular emphasis on transparent, accountable corporate governance and substantial reduction in loan defaults, the MPS said. While the recent capital market buoyancy may reflect a recovery from its prior depressed state since 2011, caution is warranted in ensuring that exuberance remains rational, BB Governor said. Otherwise there will be a risk of profit seeking small investors getting hit badly like what happened before.
Though there are whispers of picking up of private investment, it is nearly tip on the iceberg. Remittance slumped by 17.63 per cent year on year to $6.17 billion in the first half of the fiscal year. BB boss informed us of his having taken a number of immediate to short-term measures to assess and identify the reasons for the falling inward remittance through banking channel. On the short-term basis, BB has taken up a research to find out reasons behind the slide in remittance. The research team will visit Saudi Arabia, United Arab Emirates and some other Southeast Asian nations where Bangladeshi expatriates are staying. As the immediate measures, Bangladeshi embassies and high commissions in remittance prone countries have been made alert so that unscrupulous quarters cannot remit money through illegal channel like Hundi. In addition, whether banks are charging higher commission for channelling inward remittance will be assessed.
As the hints are given before, the newly declared monetary policy was framed in the backdrop of a little upturn of private investment and a fear of inflation to be going up, several indicators point to robust economic activity in the first half of 2016-17, being aided by macroeconomic and political stability and strong domestic demand. Private credit growth stands at around 15-16 per cent for the last three years. Medium and large scale manufacturing industries also grew robustly. Export growth has been moderated but held up relatively well, i.e. 4.4 per cent in December 2016 when compared to that of the past and it is expected to pick up. This trend indicates that the GDP growth is on the path of its reaching the budgetary target. It will cross the target provided the global and domestic conditions remain favourable.
But some economists point out that the MPS is a little short to address concerns on credit quality and reserve management. On credit quality, the MPS fails to be innovative. Also, the MPS is silent on the current BB stance on reserve management, particularly with regards to the proposals recently floated on the creation of a sovereign Wealth Fund and BB's own initiative to use reserves for financing garment and footwear exports.
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) in its statement said that Bangladesh had to run through global challenges for keeping up competitive edge of their products. But the recently declared MPS is not sufficient to cope with those challenges. They are concerned about the pernicious effect of the exchange rate of taka and devaluation of pound after Brexit. The MPS should have directives relating to such challenges. To them, the MPS is the revisit of the immediate past monetary policy which was of conservative nature. They demanded for a more liberal lending process to boost up more private investment.
BGMEA told media, the garment exports are losing big markets in the world. Last month they have lost export growth to the tune of 3.35 per cent and in last six months they achieved a growth target of only 4.37 per cent. On this ground, they demanded for setting up of two industrial zones near Dhaka and Chittagong, reforming and transferring small and medium industries therein. Their doing business has become expensive due to devalued Euro and pound, Brexit, post-election USA and crisis of governance in banking sectors.
For that reason, formation of re-financing fund has become obligatory and the government must do it for protecting, reforming and transferring of small garment industries. For it, opportunities are to be created in the ongoing MPS. Targeted growth depends on private investment. Public investment will just induce private investment to reach the goal. The extent and rate of our ADP implementation is too much gloomy. Up to December last year, only 27.20 per cent of the ADP has been implemented. The rest would have to be implemented within the next five months. So the quality of public investment is worth questioning. Investment buoyancy calls for private investment for which a congenial monetary policy is meant for. Days to come will say the aptness of the newly declared monetary policy.
Haradhan Ganguly is a free lance contributor

The MPS is silent on the current BB stance on reserve management, particularly with regards to the proposals recently floated on the creation of a sovereign Wealth Fund and BB's own initiative to use reserves for financing garment and footwear exports





LATEST NEWS
MOST READ
Also read
Who will look after poor and helpless patients?
Rohingya repatriation process: Ensure human rights
Power price hike: eight times in eight years
Save Dhaka people from mugging
We expect responsible comments from ministers
Fulfil primary teachers’ genuine demands
Return of abductees shrouded in mystery
Denial will not save education system
Editor : Iqbal Sobhan Chowdhury
Published by the Editor on behalf of the Observer Ltd. from Globe Printers, 24/A, New Eskaton Road, Ramna, Dhaka.
Editorial, News and Commercial Offices : Aziz Bhaban (2nd floor), 93, Motijheel C/A, Dhaka-1000.
Phone: PABX- 41053001-06; Online: 41053014; Advertisement: 41053012.
E-mail: district@dailyobserverbd.com, news©dailyobserverbd.com, advertisement©dailyobserverbd.com, For Online Edition: mailobserverbd©gmail.com
🔝
close