Daffodil International University
Faculties and Departments => Business Administration => Business & Entrepreneurship => BBA Discussion Forum => Topic started by: Rozina Akter on August 06, 2014, 06:35:48 PM
-
Like every half-a-year, Bangladesh Bank (BB) has recently announced the monetary policy statement (MPS) for the first half of the FY 2014-15 (July-December 2014). It has mainly focused on restraining inflation. Current monetary stance has targeted the monetary growth path of bringing down the inflation to 6.5 per cent by June 2015 and supporting inclusive economic growth. With a view to attaining this, the BB has revised its reserve money growth target to 15.5 per cent and broad money growth to 16 per cent by December 2014, which were 16.2 per cent and 17.0 per cent respectively in the last MPS (January-June 2014) and thus relatively contractionary in stance. The ceiling for private sector credit growth is now 16.5 per cent, including foreign borrowing, of which 14 per cent from local sources by the next December 2014. With all this, Bangladesh Bank predicts the country's economic growth to be between 6.2 per cent and 6.5 per cent in the current fiscal year (2014-15) which deviates from the budget target of attaining 7.3 per cent of GDP (Gross Domestic Product) growth.
TO ATTAIN INCLUSIVE GROWTH THE MPS STATES THAT:
* Private sector credit growth of 16.5 per cent (from domestic 14 per cent and rest from foreign sources);
* MPS advises to lend only to creditworthy clients for productive purposes;
* It also stated that ceiling on net domestic assets are flexible and the monetary programmeme can be re-calibrated any time if deemed necessary;
* The H1FY15 monetary programme assumes that any unanticipated spending pressures will be accommodated within the sizeable (312 billion taka) borrowing limit set in the FY15 National Budget;
* Fiscal-monetary coordination will continue among senior policymakers of the government.
IN ORDER TO SUPPORT ECONOMIC GROWTH OF 6.5 PER CENT, BB HAS TAKEN A NUMBER OF POLICY STEPS WHICH ARE :
* The size of the Export Development Fund has been raised from $1.2 billion to $1.5 billion and this will be reviewed periodically in line with demand and productive use of these funds. Moreover, the single-party ceiling was raised from $12 million to $15 million;
* As an investment incentive, foreign investors are now allowed to source term loans from local banks and access working capital as an interest-free loan from their parent company.
EFFECTIVE TRANSMISSION OF MONETARY POLICY REQUIRES WELL-FUNCTIONING, BROADER AND DEEPER CREDIT AND DEBT MARKETS. THIS, IN TURN, HAS A NUMBER OF DIMENSIONS AS BB
STATED:
* Promoting interest rate flexibility by tackling asset quality issues - A number of steps were taken in H2FY14 and will continue in the coming months to strengthen the financial system and improve asset quality. Since the non-performing loans are concentrated among SoCBs (state-owned commercial banks), a stringent financial improvement plan for four SoCBs and Basic Bank is being enforced. Detailed guidelines were issued to all banks on improving corporate governance in line with the amended Bank Companies Act.
* Strengthening financial inclusion and diversification - BB's ongoing financial inclusion campaign, coupled with recent issuance of agent banking guidelines, are designed to extend outreach of financial services into remaining pockets of inclusion in under-served areas and among under-served clients.
* Strengthening domestic debt markets - Promoting trading in corporate papers and asset-backed securities will remain important for market development.
TO PRESERVE THE COUNTRY'S EXTERNAL SECTOR STABILITY BB HAS PROPOSED:
* Further building-up of foreign reserves in H1FY15 though at a more moderate pace than FY14.
* BB will continue to support a market-based exchange rate while seeking to avoid excessive foreign exchange rate volatility.
REVIEW OF THE MONETARY POLICY STATEMENT BY THE GENERAL ECONOMICS DIVISION, PLANNING COMMISSION: Like all other monetary authorities or central banks, Bangladesh Bank (BB) is regularly publishing monetary policy statements twice in a year. Publishing and maintaining credibility of MPS is not an easy task in a developing country like Bangladesh. Before preparing Monetary Policy Statement for H1FY15, BB analysed global economic prospects and probable consequences for our economy, discussed and reviewed previous MPS (January- June 2014), held productive consultation with key stakeholders and went for web-based comments.
Following the same spirit this H1FY15 monetary stance has focused on restraining mainly inflation as of previous couple of Monetary Policy Statements. Current H1FY15 has targeted monetary growth path of bringing down the inflation to 6.5 per cent by June 2015 and proposing inclusive economic growth. With a view to attaining this, BB has revised its reserve money growth to 15.5 per cent and broad money growth to 16 per cent by December 2014, which were 16.2 per cent and 17.0 per cent in the last MPS (January to June, 2014) respectively. It also revised its Net Foreign Asset (NFA) growth to 30.3 per cent and Net Domestic Asset (NDA) growth to 12.4 per cent which were 8.4 per cent and 19.0 per cent respectively.
The ceiling for private sector credit growth is now 16.5 per cent, including foreign borrowing, and 14 per cent from local sources by December 2014. Expectedly, borrowing from foreign sources would be preferred given the very low interest regimes than the domestic sources.
Apart from the above, BB has also aimed to raise Export Development Fund from $1.2 billion $1.5 billion to boost exports. To consolidate country's external sector stability, BB will continue to support a market-based exchange rate by building-up of foreign reserves in H1FY15 at a more moderate pace than FY14 to avoid excessive foreign exchange rate volatility. It is also hoped to maintain fiscal-monetary coordination on a regular basis by attending Coordination Council meeting. For effective transmission of monetary policy BB aims to promote interest rate flexibility by tackling asset quality issues, strengthen financial inclusion diversification and strengthen domestic debt market.
Source: The Financial Express
-
Informative post.