Bangladesh Bank (BB) has observed that the current political unrest has cast a shadow of uncertainty over achieving the target.Bangladesh Bank has set a target to reduce bank interest rate spread during January-June period of the current fiscal year, aimed at spurring the capital market of the country.
? Despite some upside risks, inflation will be kept under control to reach the target of 6.5
percent by June 2015.
? The economy is poised to achieve a respectable growth rate between 6.5 and 6.8 percent
in the fiscal year 2015 if political stability prevails. The bottlenecks of infrastructure and
energy must be addressed promptly.
? Over the last 20 years Bangladesh evidenced the highest amount of stability in inflation
and economic growth in the South Asian region that includes India, Pakistan and Sri
? Bangladesh’s growth performance is the second best (5.73 percent) after India (6.77
percent) and its inflation is the lowest (6.45 percent) in the region over the last two
? Bangladesh Bank will pursue a monetary policy of prudence to strike the balance
between objectives of moderate inflation and respectable growth. Money supply and
policy rates will be controlled accordingly while opening further avenues to promote
investment through greater financial inclusion.
? Banking governance will be up scaled further to clamp down on loan delinquencies.
While the cases of credit worthy borrowers will be reviewed, habitual defaulters will face
? Bangladesh Bank will endeavor to iron out excessive fluctuations in the exchange rate
which will remain largely market based.
? The central bank will continue to maintain comfortable amount of foreign currency
reserves to cover imports of 5 to 10 months. This safety net is required to avoid any
sudden collapse in the value of Taka and to ensure a healthy growth of imports of
? Bangladesh Bank aims at supplying reserve money at the growth rate of 15.9 percent and
broad money at 16.5 percent at the end of FY2015.
? Private sector credit growth has been targeted to grow at 15.5 percent at the end of
? At the retail level both deposit and lending rates fell in July-December of FY2015 and the
interest spread has on average decreased from 5.31 percent in June 2014 to 5.17 percent
in December 2015. Bangladesh Bank will continue its effort to reduce this spread.
The target was set at the central bank’s monetary policy announced Thursday for the second half of the fiscal year (FY) 2014-15.
The policy was adopted to bring down the inflation rate to 6.5% from current 6.99% (12-month average) and achieve an economic growth within a range between 6.5% and 6.8%.
“I hope that our monetary policy issued today will play the same effective role as the previous issues in instilling and strengthening public confidence on Bangladesh Bank’s actions aimed at containing and stabilising CPI inflation,” Governor Dr Atiur Rahman said, releasing the Monetary Policy Stance (MPS) at Bangladesh Bank headquarters in Dhaka.
“I also believe that its attendant inclusive, environmental sustainability supportive credit and financial policies will make meaningful contribution in supporting the government’s pursuit of on the country’s path towards prosperity.”
Atiur said Bangladesh Bank’s attention in support of capital market stability will continue in seccond half of FY2014-15.
He said the central bank has the statutory responsibility of enforcing compliance of banks with the legal limits on their capital market exposures; but further to this, Bangladesh Bank has continued liquidity support for capital market transactions in volumes permissible within Bangladesh Bank’s monetary programs.
In the first half of this fiscal year, he said Bangladesh Bank has introduced a number of new investor-friendly regulatory reforms facilitating external transactions of foreign and local businesses including investors in the capital market.
Atiur said deposit and lending interest rates of banks and financial institutions have been coming down in line with decline in CPI inflation; intermediation spreads between weighted average deposit and lending interest rates of banks and financial institutions have come down to five percent or lower in the state owned banks and the majority of private sector banks.
The spreads are higher in the foreign banks and in some private sector banks with high engagement in riskier small enterprise lending, he said.
“Bangladesh Bank’s attention towards rationalization of these higher spreads will continue.”
The governor said competitive lending interest setting behavior not having yet fostered well in the local financial market.
Bangladesh Bank resorted to setting ceilings on lending interest rates in two priority areas – pre-shipment export credit and agricultural credit.
In the context of general declining trend in interest rates, in H1 FY2014-15 Bangladesh Bank has revised the lending rate ceiling for agriculture downward from 13% to 11%. Competitive rate setting behavior in the market would have rendered prescription of such ceilings unnecessary.
“Bangladesh Bank will therefore pursue ways of fostering of competitive price setting, rate setting attitudes and practices in our financial markets.”