BB tightens monetary policy

In order to curb inflationary and external pressures, the central bank will follow a tighter monetary policy stance in the second half of the current fiscal year.

According to the monetary policy statement for January-June period of 2011-2012 released Thursday, the monetary growth target from the first half of the fiscal year was readjusted downward to make the tightening approach more effective.

Bangladesh Bank Governor Atiur Rahman announced the monetary policy statement at his office in Dhaka.

The central bank has set a target of 16 % private sector credit growth by June, which was set at 18 percent in the monetary policy for the first half of the current FY.

The central bank termed the new private sector credit growth as “healthy”.

The central bank also adjusted downward the gross domestic product (GDP) between 6.5 and 7.0 percent for the January-June period.

During proposing budget in June, the government forecast a 7 percent GDP growth for the current fiscal year, assuming stable domestic and global economic conditions.

The private sector credit growth was 19.33 percent in November 2011, which was 28 percent in the last fiscal year.

However, donor agencies such as the World Bank and International Monetary Fund put the growth at 6 percent.

The central bank said data for the first half of FY12 on agricultural output as well as indicators of industrial and service sector performance suggest that this growth rate could be achieved if there is no change in the global environment.

The central bank has kept a lower ceiling in the projection of economic growth.

The statement said BB aims to bring inflation to single digits, which has been stubbornly staying at double digit for the last nine months. In December, in a surprising update the non-food inflation outpaced the food inflation in a rare instance.

About $2 billion has been wiped off of the country’s foreign currency reserve in recent times. On January 18, it was $9.04bn, down from $10.91bn on June 30 last year.

A prudent fiscal stance of the finance ministry is essential for curbing inflation and boosting foreign currency reserve, said the MPS.

It will ensure that government borrowing from the banking system does not crowd out available liquidity for commercial banks and it will remain a key area of focus for BB.

“However this private sector credit growth rate could rise if government borrowing from the banking system remains less than anticipated,” said MPS.

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