Economists yesterday said the central bank might not achieve its monetary policy targets for the current fiscal year due to the government's bank borrowing and politicised boards of state banks.

The economists, including former adviser to caretaker government Mirza Azizul Islam, expressed doubts over the targets at a discussion organised by the Economic Reporters' Forum in Dhaka yesterday. The central bank announced the half-yearly monetary policy statement on Thursday.

But Bangladesh Bank Governor Atiur Rahman brushed aside the worries and said the problems in the economy are due to the “pressure of success”.

“The rail tracks used for a train running at 50 kilometres an hour are now taking the burden of a train speeding at 150 kilometres," he said. "It is creating some problems."

The BB governor, however, said the problems will ease when higher growth is achieved.

Replying to journalists' queries about giving licence to new banks, the central bank governor said the decision to approve new banks will be taken following advice by the BB board. He also said the central bank enjoys full autonomy except in raising its staff salary.

BB set a target to lower credit growth to cut inflation. In the last fiscal year also, a target was fixed for cutting credit growth but it crossed the target.

Mirza Azizul Islam said the state owned banks control about 50 percent of the bank credit. He said, when he was an adviser in charge of the finance ministry the state banks were given a corporate structure. As a result, the central bank got some control over those.

“In the recent times we have observed that the bank boards have been politicised. As a result, they are more or less out of control of the Bangladesh Bank," Islam said.

There is a limitation on the part of the central bank as to how much it can cut credit growth in the politicised banks, he said.

It remains to be seen what effect the credit growth is creating as a result of giving loans in agriculture and small and medium enterprises, Islam added.

Loans taken for agricultural purpose is being used for buying motorcycle, building houses or SME loans being invested in the stockmarket, the former adviser said.

Islam said these are the fundamental problems of the monetary policy and for this reason, in the recent times the targets set in the monetary policy cannot be implemented. He, therefore, has doubts about how much the goals of the monetary policy could be achieved.

He also posed a question as to how prudent the BB advice was to borrow funds for large infrastructure projects from abroad.

Research Director of Bangladesh Institute of Development Studies (BIDS) Zaid Bakht said, the BB monetary policy did not spell out how the target of cutting money supply would be achieved.

He said, in the last fiscal year the banks invested in the share market but the central bank did not take right steps at right time. They awoke from slumber in December and raised the cash reserve requirement (CRR). The same trend exists now. It is not clear how much the BB will be able to contain it.

Bakht said the public sector borrowing also pushes up inflation but the monetary policy did not have any cautionary message for the government. He also said the biggest problem in government borrowing is that they borrow at the end of the fiscal year. As a result, when the commercial banks face a liquidity crisis they take money from the central bank. Ultimately, the entire amount of the government borrowing comes from the central bank, which increases inflation.

Refuting Bakht's criticism, BB Deputy Governor Ziaul Hasan Siddiqui said the central bank did not suddenly wake up in December to raise the CRR. He said inflation was increasing every month over the period of about six months. That is why the central bank raised the CRR to control credit.

The exposure of the banks in the capital market is only 3 percent of their liabilities. As per law, the banks can invest up to 10 percent of their liabilities in the stockmarket.

Siddiqui also said the MPS contained clear advice on the government's and state owned enterprises' borrowing.

Senior consultant of the BB Allah Malik Kazemi said, through the monetary policy the central bank succeeded in containing core inflation (non-food inflation). However, the MPS could not help contain food inflation.

Kazemi also said, as the economy sped up quickly in the last fiscal year the MPS had to make some concessions keeping with the fiscal policy. He said he is hopeful of achieving the target set in the MPS for this fiscal year.

Murshid Kuli Khan, another deputy governor of the BB, said the central bank strictly monitors agriculture loans and SME loans. The BB conducted a study which found that the loans have not been spent on other purposes, he said.

Economist Qazi Kholiquzzaman Ahmad said inflation cannot be contained by the monetary policy only; it has to be coordinated with the government's revenue, import and trade policies.

World Bank senior economist Zahid Hussain said limiting the government borrowing will be a big challenge.

Director General of Bangladesh Institute of Bank Management Toufiq Ahmad Choudhury said the government will have to play a big role in achieving the policy targets.

News: The Daily Star/Bangladesh/ July-31-2011