Bangladesh Bank moves to check inflation

Bangladesh Bank monetary policy for the first half (July-December) of the 2015-16 fiscal will focus on reducing money supply to control inflation.

In the new monetary policy unveiled by central bank Governor Atiur Rahman on Thursday, the target for augmenting money supply has been fixed at 15 percent.   
  
It is estimated to be 16 percent by the end of the financial year.
 
The increase of money supply was 16.5 percent in the second half (January-June) of the last fiscal year.
 
This means the central bank wants to supply 1.5 percentage points less currency into the market in this half of the current fiscal year.
 
Governor Rahman said he believed the new policy would help achieve the seven percent economic growth target besides restraining inflation by avoiding unnecessary loans and strengthening the stability of the macro-economy.
  
The estimated growth of credit flow to the private sector will also be curbed with less money supply projected.
 
The targeted growth of credit to the private sector has been set at 14.3 percent and may stand at 15 percent by the end of the current fiscal year.
 
Industrial and commercial growth is determined on the basis of credit flow to the private sector.
 
The credit flow to the private sector grew 13.6 percent until May against a target of 15.5 percent in the January-June period of the last fiscal year.
 
On the other hand, the central bank thinks the government’s borrowing will increase -- so it set a target of 8 percent growth in credit flow to the government.
 
The growth of government’s borrowing was 2.7 percentage points less than the target in the past six months, giving this year’s growth target the opportunity to increase to 10.7 percent.

Though the new policy has lowered target of credit flow to the private sector, the governor said the monetary policy will maintain flown of funds to attain 7 percent growth. "Our monetary policy is very flexible.”

Central bank Chief Economist Biru Paksha Paul said: “There is no cause for frustration. It’s an investment-friendly monetary policy and will help attain adequate level of growth.”

About government borrowing, the governor said the projection seems high, as the borrowing in the last financial year was low.

The government planned in the national budget for the current FY to borrow 23.7 percent more than the borrowing in the last FY.

Rahman said rise in investment would result in decline in dependence on foreign resources. “That will grow at 5 percent this FY.”

He expects the growth in foreign exchange reserves will slow down and the balance of payment will see a deficit equivalent to 2 percent of the GDP.

The governor, however, thinks there is nothing to be worried over the deficit.

He said the central bank would slash interest rates on repurchase agreement (repo) and reserve repo in case of decline in inflation rate.

To a question if the monetary policy is exacerbating social discrimination, Rahman said: “It’s right that social discrimination exists. But monetary flow is now increasing to low-income people.

“Tk 4.3 billion is being transacted everyday through mobile banking. Eighty percent of the money is flowing from urban areas to villages. Around 3.2 million transactions are taking place every day. Rural economy is being boosted.”

He said Tk 160 billion in agriculture loans and around 100,000 small and medium enterprises were enhancing income of the people.

 “Domestic market has widened… In other countries, discrimination and growth go hand in hand. That is not happening in our country. Rather growth rate is increasing and discrimination going down.”