Bangladesh Bank (BB) should take conscious steps in preparing the forthcoming monetary policy as it has to continuously deal with some challenging issues such as escalating inflation, depreciation of taka and ensuring credit flow to productive sector against rising public borrowing.

As the next monetary policy covers the last six months of the current fiscal, it warrants some assertive steps by the BB to help the government keep inflation and borrowing within the budget limits of 6.7 per cent and 5 per cent respectively with achieving 7 per cent economic growth.

Economists made these suggestions when requested for their opinions about the January-June monetary policy, to be announced later this month.

Under the existing economic situation, BB has no option but to choose a contractionary monetary policy, they said, adding that special attention must be taken to inject credit into productive sector to increase employment opportunities. BB’s constant monitoring on credit is essential to maintain a balance, they opined.

If needed, the central bank should go beyond its normal practice of preparing the monetary policy alone and sit especially with the finance ministry and the National Board of Revenue (NBR) to make the monetary management more effective and achieve the targets of the policy, they said.

“As the inflation, depreciation of taka, public borrowing are major challenges for the government, the central bank should take these issues into active consideration while finalising the next monetary policy,” said former governor of Bangladesh Bank Dr Salehuddin Ahmed.

He said focus on the issues was made in the July-December monetary policy, but those were not achieved. Special attention should be given on growth-driving sectors, and BB must ensure credit for the expansion of these sectors, he added.

“Public borrowing needs to be reduced but it depends on finance ministry,” he said.

Salehuddin said BB must sit with finance ministry and other agencies, including NBR.

He said the central bank must tighten its supervision and monitoring to stop credit flow to unproductive sector and check letter of credit opening for luxurious goods.

Dr Mustafizur Rahman, executive director of Centre for Policy Dialogue (CPD), a civil society think-tank, said achieving the targets of the next monetary policy is important because BB could not properly implement its July-December monetary policy.

He said the forthcoming policy should be contractionary and BB should lay emphasis on achieving the targets.

About government’s borrowing from banking system, he said BB cannot deny the government if it wants to borrow from banking system. But it should give the government a strong signal about the consequences of such borrowing.

The Daily Sun/Bangladesh/ 17th Jan 2012