BB cuts pvt sector credit growth target amid failure to meet goals

Announces monetary policy for July-Dec
Bangladesh Bank on Saturday announced the monetary policy for July-December cutting down the private sector credit growth target to 14 per cent from 16.50 per cent in the previous six months after failing to achieve the targets for the last two years.
The BB, however, in another calculation showed the credit growth target for the private sector would be at 16.5 per cent in July-December by including the foreign loans taken by private firms in the policy for the first time.
The central bank earlier set the private sector credit growth target at 16.5 per cent for the just concluded FY14 but the year-on-year growth stood at only 11.39 per cent in May 2014.
BB governor Atiur Rahman, while announcing the monetary policy for July-December at the central bank headquarters in the capital, termed the latest monetary programmes as ‘cautious and environment friendly’ like its previous policy.
He said that they had included the foreign loans taken by the private firms into the calculation of credit growth because of the rise in foreign credit in the private sector.
Replying to a question, BB chief economist Hasan Zaman said that the foreign loan growth in private sector had been estimated at 2.50 per cent considering the recent rise in overseas credit.
Economists and BB officials told New Age that the central bank might fail again to achieve the private sector credit growth if the existing political uncertainty did not improve in the coming months.
Besides, they said, the central bank’s target of 14 per cent credit growth, even if achieved, might not be enough to achieve the GDP growth target of 7.3 per cent set by the government.
The central bank was not able to achieve its monetary programmes for the private sector in the last few years due to unfriendly business environment amid political uncertainty and unrest.
Atiur said the central bank in its latest monetary policy put importance on ensuring the financial stability in the banking sector along with the price stability.
‘The central bank has already fired managing director of BASIC Bank due to his suspected involvement in corruption and suggested the government for reconstitution of the board of directors of the bank. The government has taken the initiative replying the central bank suggestions’, he said.
The central bank will take more programmes in the coming days to make vibrant the country’s investment sector and capital market, Atiur said.
The BB is now discussing with the Bangladesh Security and Exchange Commission to provide the entrepreneurs with equity finance in line with rules and regulations, he said.
The exchange rate of the taka against the US dollar continued to face a pressure due to a lower import payment against a higher growth of export earnings and steady growth in inward remittance, the BB governor said.
The BB will continue to purchase the greenback from the local market to keep stable the exchange rate between the dollar and the taka, he said.
The interest spread rate of the banks, the gap between interest rate on deposit and lending, has recently increased due to a higher interest rate on lending against lower rate on deposit, Atiur said.
The BB continues to pressurise the banks to lower their interest rate on lending, he said.
The central bank set the annual average consumer inflow target at 6.5 per cent by June of the FY15 from it earlier target of 7 per cent by June 2014. The inflation, however, stood at 7.35 per cent at the end of June 2014.
Former BB governor Salehuddin Ahmed told New Age on Saturday that the central bank set a traditional monetary policy as the monetary programmes were almost similar to the previous policies.
He said the BB should have increased the credit growth target in the private sector in its monetary policy to regain the confidence of the businesspeople.
The monetary programmes will not be a success if the political situation does not improve, Salehuddin said.
Former finance adviser to the caretaker government AB Mirza Azizul Islam told New Age that the credit growth in the private sector had maintained a slow trend in the recent period due to a lower credit demand from the businessmen.
The lower credit demand is still persisting as the businessmen are yet to get confidence back to expand their business due to the political uncertainty, he said.
The success of monetary policy will depend on the political stability, he said.
In its latest MPS, the BB, however, set a private sector credit growth target at 15.5 per cent at the end of the FY15.
The BB set the public sector credit growth at 12.9 per cent by December 2014 and 24.8 per cent by June 2015 in line with the government requirement.
The BB set the net foreign asset growth target at 30.3 per cent by December 2014 and the net domestic asset growth target at 12.4 per cent.

-With New Age input

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