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

Policy approach, FY11
outcome, outlook for FY12
1. Policy approach: Besides employing policy interest rate (repo, reverse repo rate) interventions to influence real sector price levels via financial sector prices, 88's monetary policies seek to influence real sector prices also via quantity theory based money stock targeting; monetary programmes chalk out target growth paths for broad money (M2) and its sub-aggregates, implemented by day to day management of growth path of reserve money (RM, currency in issue and balances of banks with 88).
This approach is felt necessary because of inadequacy of well functioning transmission channels from financial prices to real sector prices in domestic markets still at early stage of development, and also because unlike economies fully open on capital account, money stock targeting is feasible in economies like Bangladesh maintaining controls on capital flows. The annual average CPI inflation level projected for a fiscal year in the annual national budget is taken as the target real sector price level for monetary policies. In stakeholder consultation sessions on monetary policy stance questions were raised about why BB does not set low inflation targets on its own instead of adopting the rather high inflation projections of national budgets. Also, in the backdrop of monetary growth and inflation outcomes persistently exceeding program targets in recent periods, questions were raised about relevance of the methodologies now in use, Brief observations on these issues will be in order here.
As regards why BB doesn't set inflation targets on its own, even in the advanced economies where central banks are specifically mandated to pursue Inflation targets, the inflation levels to be targeted are set by governments answerable to their electorates, not by the central banks themselves. In other words, those central banks enjoy operational independence but not goal independence, just as in Bangladesh. Inflation levels projected in the annual national budgets are not numbers drawn off the cuff; these are outcomes of careful interagency deliberations actively participated interalia by relevant BB staff. As for why inflation targets thus chosen are on the high side compared to global inflation, it needs to be noted that within the 'global composite, developing economy inflation levels are in general substantially higher than in mature advanced economies, IMF and other multilateral agencies report inflation levels separately for these two country groups. Trade globalization has by now broadly equalized prices of tradable in developed and developing economies; price levels of non-tradable (such as personal and professional services etc.) are still on path of gradual convergence, rising from the much lower levels in developing economies. The rising trends in prices of non-tradable will keep Inflation in developing economies higher than in advanced economies until full convergence with the stable but higher price levels of the latter.
Besides this inherent divergence in inflation dynamics, the other compel1ing reason for not choosing lower single digit inflation targets is that in developing economies such low inflation levels are growth inhibitive rather than growth supportive.
Growth of Bangladesh economy in the early low inflation years of this century was not spectacular, while the economies of China and India worrying over high and rising inflation continue on roaring growth pace. Empirical studies with cross country data find moderate inflation growth
supportive up to a certain inflexion point, beyond which further rise in inflation starts hurting growth. A recent estimation by 88's PAU following  methodology developed by Khan M 5 et al1 finds this inflexion threshold for Bangladesh at around eight per cent; although the adverse effect on growth may not always show up immediately (chart 4 ).  As to whether the monetary programming exercise now in use in Banglade5h i5 any longer relevant given the overshoots of both monetary growth and inflation beyond targeted levels in successive recent periods, it may be noted that these recent periods were not quite the normal trend periods when monetary and other programmes based on many simplifying assumptions produce expected outcomes. The significant growth slowdown of FY09 and the recovery speeding up sharply in FYl1 required policy interventions of opposite kinds towards relieving the stresses and maintaining
 balance. During such episodes when other imperatives override monetary program objectives, overshoots from programmed monetary and inflation targets are unsurprising and do not nece5sarily indicate 10$5 of relevance of monetary programming exercises. On the contrary, the evidence of declining non-food CPI inflation and slower rise of headline CPI inflation in FY11 indicate continued relevance and effectiveness.
(To be continued)

News: The Independent/ Bangladesh/ July-31-2011

BRAC Bank has launched a special credit card for online foreign exchange payment for specific business purposes such as domain purchase, server hosting and software licence purchase for IT businesspeople.

The 'BASIS-BRAC Bank co-branded credit card' will be issued only to the members of Bangladesh Association of Software and Information Services (BASIS). The VISA card was launched yesterday at Sonargaon Hotel.

One card would be issued for one BASIS member company and would be used only for the specified type of foreign payment.

Launching the card, Bangladesh Bank Governor Atiur Rahman said, this type of co-branded card would be a model product for other banks to offer. BRAC Bank has come forward with new products that are supported by the central bank, he said.

The governor hoped to offer similar type of credit cards for the individuals who export software. A generic guideline has already been drafted by the central bank. Now the banks should go for international domain agreement, the governor said.

Rahman said a local bank has already offered international virtual credit cards for students who want to pay foreign educational institutions' fees online. He requested BASIS to come forward to use the idle Tk 500 crore lying in the name of Equity and Entrepreneurship Fund (EEF) at the Bangladesh Bank for IT related entrepreneurship.

The agriculture sector was able to use the EEF fund, but the IT sector is yet to take benefit of the fund, he said.

Mahboob Zaman, president of BASIS, said bad days are coming, as students do not seem interested in studying science subjects. Only 24 percent students showed interest to study science in higher education in recent years, which was 43 percent in 2000.

Zaman urged all concerned to organise campaigns to motivate students to study science and ICT subjects.

Syed Mahbubur Rahman, managing director of BRAC Bank, said his bank believes that people now opt for automated system for money transaction. He said BASIS members can get the co-branded card on payment of Tk 35,000 which was Tk15 lakh previously. BRAC Bank will introduce electronic commerce platform for BASIS members soon, he said.

AKM Fahim Mashroor, senior vice-president of BASIS, urged the quarters concerned to extend long-term loans for the students of IT.

News: The Daily Star/ Bangladesh/ July-06-2011

National Credit and Commerce Bank Limited (NCC Bank) collected deposit of Tk 76.51 billion during the first six months of the current fiscal year, which is 13 per cent more than that of the corresponding period of the previous fiscal.

The bank’s total loans and advances stood at Tk 67.08 billion in June 2011.

This was revealed at a two-day long half-early conference of branch managers and executives of the bank, concluded in the city yesterday, said a press release.

Chairman of the bank Md Nurun Newaz inaugurated the conference as chief guest while directors Sohela Hossain, K Z Mahmud, Tofazzal Hossain, Khairul Alam Chaklader and Professor Shahid Uddin Ahmed were present as special guests.

Mohammed Nurul Amin, managing director and chief executive officer of the bank, chaired the function while the bank’s additional managing director Golam Hafiz Ahmed, deputy managing directors AK Md Siddique, Swapan Kumar Das, Mohabbat Khan, TM Faruque Chowdhury, executives and branch managers, among others, were present. In his speech, bank’s chairman Nurun Newaz said: “Banking activities has radically been changed as it is not just procuring deposit and lending money in conventional way today.”

News: Daily Sun/ Bangladesh/ July-31-2011

Bangladesh Bank has directed all scheduled banks to open complaint cells in their zonal offices by a month.

The financial and banking sector regulator yesterday issued a circular to that effect saying that the cells would be like those currently prevailing at the banks’ head offices

The circular said BB’s branch offices are struggling to settle piled-up complaints against various scheduled commercial banks’ zonal offices because of an absence of the banks’ own complaint cells there.

The circular also instructed send the central bank the names of the cells and other contact details including phone and fax numbers, e-mail address and others.

News: Daily Sun/ Bangladesh/ 25-Jul-2011