Bangladesh Bank aims to control credit flow to public and private sectors in such a manner that can both meet the government's GDP growth target and lower inflation.

“The monetary policy stance ensures that attaining the GDP growth target is not constrained by access to credit for productive purposes," BB Governor Atiur Rahman said yesterday.

The BB also wants to limit domestic credit growth to levels consistent with the inflation target in the current fiscal year,” Rahman said while announcing the monetary policy for July-December, at the central bank headquarters in Dhaka.

In the current fiscal year, the GDP (gross domestic product) growth target has been set at 7.2 percent and inflation at 7.5 percent on an average basis.

The target of the private sector credit growth to be achieved by December has been raised by 2.3 percentage points over the previous year's target and set at 18.3 percent.

In the previous monetary policy, a target was set to bring down private sector credit growth to 16 percent by June, but the central bank has estimated that it may be 18.5 percent during the period.

However, the public sector credit growth has been lowered by 17.5 percentage points and set at 13.5 percent by December.

In the previous monetary policy, a target was set to contain public sector credit growth at 31 percent by June, but the BB estimated that it may be 23.4 percent during the period.

In the new monetary policy, the target for the private sector credit growth by June next year has been set at 18 percent and for the public sector at 20.8 percent.

The BB governor said credit to the private sector is envisaged to remain at a healthy 18 percent, above that in other countries in the region, and enough to accommodate the GDP growth target for the current fiscal year.

This stance is being closely coordinated with the finance ministry, he said.

Ensuring that the government's borrowing from the banking system does not crowd out available liquidity for commercial banks will remain a key area of focus for the BB, the governor said.

Hassan Zaman, senior adviser to the BB governor, said the government's target for borrowing from the banking sector at Tk 23,000 crore for the current fiscal year has been included in the monetary programme.

But the growth in such borrowing this fiscal year is lower than that in the last fiscal year, he said.

The BB will also take steps to ease the liquidity pressure on a few primary dealer banks that are required to absorb government's securities, he added.

Allah Malik Kazemi, a senior consultant of the BB, said, whether the GDP growth target for the current fiscal year will be achieved depends on the world economy.

Kazemi said, given the ongoing global economic slowdown, there are significant downside risks for Bangladesh's export and remittance growth, and therefore for the GDP growth target.

“To overcome the risks, steps as far as possible have been incorporated in the monetary policy,” he said.

However, the BB governor said, due to different reasons including the Summer Olympic Games in the UK, orders for Bangladeshi garments have been on the rise. He said exports in the current fiscal year would be good.

In order to strengthen the financial system, new loan classification and provisioning guidelines are in place, Rahman said.

Banks will have to implement these within the period of the current monetary policy, and while these may make a one-off difference to bank profitability, they will not affect access to credit, the BB governor said.

Citing a study of the central bank, its Deputy Governor SK Sur Chowdhury said default loans in banks may rise slightly in the September quarter.

But in December, it will get adjusted, he added. "As a result, there will be no impact on banks' profitability."

Chowdhury said, if the banks follow the new loan rules properly, good borrowers will get more loans.

The Daily Star/Bangladesh/ 19th July 2012