Hopes for expansionary monetary policy

Economists, bankers and business want an expansionary monetary policy for the second half of the current fiscal.

The experts say the targets in the first half of 2013-14 could not be achieved due to political instability.

And those for the second half would also falter if the monetary policy was not an expansionary one.

An expansionary monetary policy seeks to increase the money supply mostly, to encourage economic growth or combat inflation.

Bangladesh Bank will announce the monetary policy for the last 6 months of the 2013-14 fiscal on Jan 29.

"It has not been possible to discuss with all the stakeholders this time due to the unrest. We have exchanged e-mails with those who were consulted last time," the central bank's Chief Economist Hasan Zaman told bdnews24.com.
But Zaman gave no idea about the monetary policy to be adopted for the second half of the fiscal.

Analysts and observers say that a monetary policy aimed to boost investment and employment is needed now.

Former central bank Governor Salehuddin Ahmed said: "Bangladesh Bank's monetary policy has been conventional, at best one that strikes a contractionary note.

"Those policies focused only on inflation, but they have to come out of it now and take an expansionary approach."

Ahmed said that such policy should be adopted in order to boost investments and increase production as well as employment.

Business leaders agreed.

The apex trade body FBCCI's president Kazi Akram Uddin Ahmed told bdnews24.com: "The monetary policy should help groups run their business well, keep the overall economy vibrant and create employment."

Economist Zaid Bakht advocated cutting the interest rate for a congenial investment scenario.

"Many will not be able to repay their loans in the current political situation. The monetary policy should also address this issue. It can increase the credit flow to the private sector and also take initiatives to remove the distrust among banks," said Bakht, who is a Research Director of the Bangladesh Institute of Development Studies.

Economist Mostafizur Rahman said that the monetary policy's prime goal should be to prop up investments and contain inflation.

"Because, already inflation is going up and investments are coming down", he added.

Rahman, who heads private think-tank Centre for Policy Dialogue (CPD), said that the monetary policy should also look at government borrowings.

"The monetary policy should be cautious about the government's borrowings. Because, the government is providing with stimulus packages for political reasons, which will cause the bank borrowings to go up sharply. That will push up inflation and credit flow to the private sector will suffer. Though, the liquidity in market is more than enough now."

The Bangladesh Bank's monetary policies have been focusing on containing inflation as well as facilitate rise in investment for economic growth.
The last declared monetary policy clearly failed to achieve that objective.
Inflation went up and investment dropped.

According to Bangladesh Bureau of Statistics, the average inflation in 2013 rose to 7.53 percent from the previous year's 6.22 percent. The current fiscal's budget aimed to contain inflation at 7.5 percent.

Food inflation rose to 9 percent in December from 8.55 percent in November on a point-to-point basis.

The central bank, however, claims political instability rather than its monetary policy for the rise in inflation.

"Though the central bank has nothing to do with food inflation, but sometimes the money supply system affects it. The recent rise in food price inflation was due to the current political situation and the neighbouring country's inflation affected the domestic market," said Bangladesh Bank's Chief Economist Hasan Zaman.

Stakeholders opted for alternative measures other than squeezing private sector credit flow to keep inflation under control.

According to Bangladesh Bank's statistics, private sector credit flow grew by 9 percent until November of the current fiscal. But, the monetary policy for Jul- Dec period projected it at 15 percent.