The central bank's Monetary Policy Statement (MPS) for the first half of the current financial year is largely in line with the tone and tenor of the immediate past ones. This is so as far as its principal goals and objectives are concerned. The latest MPS puts however a greater emphasis on containing inflation. That is why it has kept the policy rates unchanged, though current investment situation does otherwise call for their easing to some extent. The reason for the central bank demonstrating caution on the price situation is the rising trend of core inflation. This inflation rate takes the non-food and non-fuel price pressures into account, notwithstanding the decline in the general level of inflation, during the second half of the last fiscal.
However, the central bank is quite right in its stance on policy rates in view of banks' now having enough of excess liquidity. Thus, any easing of the policy rates, theoretically, might help the banks to lower the lending rates, but the move could make the task of keeping inflationary rate within the 'safe' limit, rather difficult. Undeniably, the banks' rates of lending to the private sector have already come down notably, though not yet down to the desired single-digit level. But the private sector, for both exogenous and endogenous reasons, has not yet shown any notable appetite for banks' funds. The available statistics about credit expansion to the private sector bear testimony to that fact. The credit growth until May last stood at 13.6 per cent as against the target of 15 per cent growth for the whole of the fiscal year (FY), 2014-15.
In this context, the central bank governor's observations about the inadequacies, in terms of physical infrastructures and other non-monetary, non-fiscal barriers to investment growth, merit a close scrutiny. Without the removal of those barriers, any attempt to make available a greater volume of bank credits for spurring economic growth rate, will have the potential to stoke inflation. But the responsibility of removing most of the barriers lies with someone else -- the government. However, much of the worries of the key functionaries of the central bank would not have persisted if quality governance in the country's banking sector, particularly in the administration of public sector credit, could be ensured.
Banks, the state-owned ones in particular, have not been able to exercise the expected level of wisdom and prudence while extending many large loans. Such stark realities have resulted in the souring of a notable part, nearly 10 per cent -- the actual volume could be more if properly assessed -- of the total outstanding loans. Malgovernance has certainly a role in adding to the stock of bad loans; allegations have it that the central bank has not also been able, maybe for reasons beyond its control, to do enough to improve this situation. On this count, the ministry of finance or for that matter the government must not be oblivious of its own role in strengthening the hands of the Bangladesh Bank (BB) as a regulator. The relevant law does not yet give enough power to the BB as far as matters in the state-owned banks are concerned. The government should thus strengthen the central bank to exercise its power with much ease and effectiveness.
