BB opts for cautious monetary policy to contain inflation

The Bangladesh Bank has adopted a cautious monetary approach in its latest policy, aiming at keeping inflation low, without making much change to the previous monetary policy.

This is the second bi-annual statement by the central bank for financial year 2018-19.

The central bank targeted to raise the credit growth for the public sector, but put a lid on the private sector credit growth to support investment and growth while managing inflationary pressure.

According to the monetary policy statement, the private sector credit has been reduced to 15.5 percent for the next six months up to June from 16.5 percent set in the previous six months. Such credit growth in December 2018 was 13.3 percent.

However, the public sector credit growth has increased from 8.6 percent to 10.9 percent for the same period.

“The latest policy has been announced to keep pace with the continuous growth and simultaneously to contain inflation,” said Governor Fazle Kabir while announcing the monetary policy on Wednesday.

“The strategy we took to keep inflation at a tolerable level in our previous monetary policy has been successful.”

The average annual inflation rate was 5.78 percent after the end of June in 2018. At the end of December, it dropped to 5.54 percent. “This is well below the target of 5.6 percent set in the budget,” said the governor.

He sees there will be no scope for food inflation rising thanks to a bumper harvest. “But there has been a sign of non-food inflationary pressure as a rising trend can be seen. That’s why time has not come yet to relax the monetary policy. "

The second key objective of monetary policy after the inflation is to provide support to the GDP growth, he said, hoping to maintain the positive economic growth.

The GDP growth target has been set at 7.8 percent for the fiscal 2018-19.

Explaining the causes behind the fall in private sector credit growth, Kabir attributed the Dec 30 parliamentary elections to the decline. "Possible anxiety and uncertainty ahead of the parliamentary elections might be the reasons."

The latest monetary policy kept repo and reverse repo interest rates unchanged at 6 percent and 4.75 percent. It also kept the domestic credit growth and broad money supply unchanged at 12 percent and 15.9 percent, respectively.

It projects the annual average inflation at around 6-7 percent assuming that there will be no further domestic or external shocks, including a relatively favourable global inflation outcome.