Bangladesh Bank announces monetary policy stance - 2015

Unveiling the half-yearly monetary policy statement (MPS) on Thursday, Bangladesh Bank (BB) Governor Dr Atiur Rahman made it clear that his policy direction for the first half (H1) of the current financial year would pursue cautious stance in credit expansion to keep inflation at a comfortable level.

In the MPS for the first half of the new 2015-16 financial year (FY16), the central bank projected 15.0 percent credit growth to private sector while the overall domestic credit growth would be 16.3 percent. The projections are higher than the preceding year's actual domestic credit growth of 10.4 percent and private sector credit growth of 13.6 percent.

Referring to the suggestions for setting high targets for credit expansion for expediting GDP (gross domestic product) growth, the governor said pumping in excessive liquidity in absence of proper infrastructure and other 'well known investment impediments' would only inflate inflation and worsen social inequity by promoting unproductive activities.

"We have therefore been taking care in adopting cautious, restrained monetary stance ensuring adequacy of credit growth, but at the same time avoiding undue excessive expansion. This stance is serving our economy well in maintaining inflation moderation and stability on a sustained basis", Dr Rahman said.

He said the central bank would pursue a firm policy stance to maintain inflation at 5-6 percent to comfort limited income people, with help the government keep prices of essential at an affordable level.

To this effect, the governor said, the MPS is designed to contain credit growth consistent with real sector output growth and manage inflation at lower level by easing of the repo and reverse repo policy interest rates occasionally.

He, however, was seemingly in the opinion that the projected 23.7 percent public sector credit growth for FY16 was not high in real sense since the growth "looks high mainly because of negative growth" in the immediate past fiscal.

The MPS projected BB's reserve money growth at 16.0 percent in FY16 against actual 14.3 percent of FY15. The governor, however, noted that the stronger domestic investment momentum would slow down the growth in net foreign asset and foreign exchange reserve when the deficit in the current account balance would also widen.