Credit growth target for private sector may remain unchanged

BB releases monetary policy statement today

Bangladesh Bank is likely to keep the private sector’s credit growth target unchanged in the new monetary policy, which will be announced today, because of continued political unrest that began on January 5.

The BB had set the credit growth target at 14 percent for the private sector in December 2014; it is 15.5 percent till June 2015. However, the private sector credit had grown 12.67 percent in November 2014 compared to the same month in the previous year.

“In such a situation, the central bank may ask banks to lend more to small and medium enterprises and the farm sector to boost credit disbursement,” a BB official said, asking not to be named.

The monetary policy is one of the major ways that the central bank attempts to control the economy and the money market. If the supply of money grows fast, the rate of inflation will increase, and if the growth in money supply is slowed, economic growth may also slow down.

Bangladesh decides on its monetary policy on a half-yearly basis. “Given the decline in global commodity prices and a corresponding decline in inflation in Bangladesh, we were earlier hopeful for a policy rate cut in Bangladesh,” according to the monetary policy outlook of BRAC EPL Stock Brokerage.

Inflation stood at 6.11 percent in December, while the policy rate was 7.25 percent. The policy rate is the rate the central bank charges a financial institution to lend money on a short-term basis. It is also called repo rate in Bangladesh.

Among neighbouring countries, Sri Lanka has kept its policy rate unchanged at 8 percent. Reserve Bank of India recently cut its rate by 25 basis points to 7.75 percent (with chances of further cuts), while State Bank of Pakistan cut rate by 100 basis points to 8.5 percent. Bangladesh’s policy rate is already lower than its neighbours.