BB announces monetary policy for 2nd half, policy rate unchanged

BB to continue collaboration with BSEC to stabilize stock market


P-1 (400 x 255)The Bangladesh bank would keep the policy rate unchanged and pursue both monetary and financial sector policy instruments to bring down the inflation rate to 7.0 percent.
As the governor said, regarding the main target of the monetary policy and managing inflation. Bangladesh Bank (BB) will continue to collaborate with Bangladesh Securities and Exchange Commission (BSEC) in stabilizing the capital market, said Governor Dr Atiur Rahman today.
“While not directly under the purview of BB, various monetary and financial sector related actions have contributed to stabilizing the capital market, and BB will continue to collaborate with BSEC in this regard,” he said while announcing monetary policy for the second half of the current fiscal year (H2FY14).
He said the BB would continue to encourage larger borrowers to access the capital market as banks will need to comply with the recently revised regulation on single borrower exposure limits for business groups.
Last year, trade bodies argued over the lowered credit growth claiming that it would hamper necessary investment, required to achieve GDP growth. The MPS for July-December 2013 cut the private sector credit growth to 15.5 percent till December 2013 and 16.5 percent till June 2014 from 18.5 percent of January-June of 2013 only to arrest soaring inflation during this period.
Dr Atiur said the MPS for the second half of the FY14 kept the credit target unchanged as it grew by only 11.1 percent in end November.
Clarifying the fall in credit growth to private sector, the MPS said this slowdown was partly due to sluggish investment demand before the January 5 national elections and tighter lending practices by banks besides the fact that there are two new channels through which entrepreneurs can access overseas lenders’ offer for lower-cost financing.
Dr Atiur, however, said the unchanged target for lending to private sector would be sufficient to accommodate any substantial rise in investment and trade-finance over next six months.
Apart from this, he said, the target is rather indicative as banks would be advised to lend only to creditworthy clients for productive purposes.
The new MPS also kept the public sector credit growth unchanged in terms of total volume though it shows higher in terms of percentage. The public sector borrowing grew by 19.5 percent in the past six months, whereas the new MPS projected 22.9 percent growth in the next six months.
According to the MPS, the projected credit to public sector for the next six months is slightly higher in percentage terms because the figure for first half was based on the estimated figure of government borrowing for the same period which turned out to be higher than the actual figure.
As a result of the “lower base effect”, the public sector borrowing growth till June 2014 is projected higher than the previous MPS even though the amount in monetary terms (260 billion taka) remains the same. “BB will continue to encourage larger borrowers to access the capital market given single borrower exposure limits for banks,” he said.
While primarily an SEC issue, the BB will be supportive of the capital market through ongoing deeper regulatory coordination and policy support, Atiur said. Moreover, in order to fill the gaps in the financial landscape, the BB will facilitate the role of private equity/venture capital sources of finance, he added.
Effective transmission of monetary policy requires strengthening credit and debt markets and this will remain a key focus for H2FY14, the governor said, adding that in order to spur secondary market activity the BB has recently embarked on secondary trading in Treasury bonds and will continue to do so in H2FY14.
He said devolvement of these securities has also fallen from 34 percent in FY13 to 26 percent in H1FY14 and this trend is expected to continue in H2FY14.
A new Islamic bond of three months’ tenure is expected in H2FY14 which will contribute to better liquidity management of Islamic banks, the governor added.