The inter-bank repo rate has gone above the call money rate, leading to serious problems for some of the primary dealer (PD) banks, sources said.

Some banks, now basking in sufficient liquidity, have been setting their interest rate at as high as 18 per cent on lending to PD banks against government securities, while the call money rate is hovering at around 15 per cent.

The Bangladesh Bank (BB) is mulling taking actions against, at least, four commercial banks for charging higher interest than call money rate on inter-bank repo deals on receipt of complaints in this regard.

At least two private and two foreign banks are now engaged in inter-bank repo deals with mostly primary dealer banks, now experiencing liquidity shortage.

Under the inter-bank repo system, four banks extended liquidity facility amounting to Tk 23.5368 billion at interest rates ranging between 14 per cent and 18 per cent on May 27 when the call money rate was 15 per cent. One foreign bank was the market leader in the inter-bank repo deals on the day involving a transaction of Tk 15.0 billion.

"The inter-bank repo rate should not exceed the call money rate, as it is a highly secured transaction between the lending and borrowing banks. The call money deals do not require collateral except the normal bank guarantee in the overnight transaction," a senior fund manager of a primary dealer bank said.

"But in the inter-bank repo deals, the government securities are always used as collateral. So the inter-bank repo rate should remain below the call money rate."

"The BB put a cap on call money rate at 15 per cent for the last two months. But it did not impose any such cap on the inter-bank repo rate, which is not justified," he added.

The inter-bank repo deals have been taking place since 2003 as per the BB guideline. But never before the inter-bank repo rate had exceeded the call money rate, the bankers claimed.

Some bank officials lodged formal complaints with the BB last week. The BB officials assured them of investigating the matter seriously and take proper action. However, the central bank is yet to take any measure to help keep the inter-bank repo rate below the call money rate, the bankers said.

"It seems some banks having idle money are not interested to be involved in the inter-bank call money market as they found the inter-bank repo market suitable for making higher profit. But it is irrational," a senior official of the BB told the FE.

"The central bank has been informed about the inter-bank repo transaction at higher rate than the call money rate. The BB officials are currently scrutinizing the matter to take formal action."

The Financial Express/Bangladesh/ 4th June 2012

Nasiruddin, Noor-a-Alam, A Jabbar Mollah

Alhaj Nasiruddin, renowned businessman of the country has been elected Chairman of the Board of Directors of Social Islami Bank Ltd (SIBL) in the 270th meeting of the Board held recently.

In the same meeting eminent industrialist Mr. Noor-a-Alam Choudhury and renowned exporter Mr. A Jabbar Mollah were elected Vice-chairmen of the Board of Directors of the Bank.

Alhaj Nasiruddin through his outstanding talent and wisdom established himself as a successful businessman. At present he is the chairman of Northern General Insurance, Proprietor of Nasim Trading Company and Nams Trade Corporation and director of J.A.N Corporation Ltd. Besides he is linked with different social and educational development works. At present he is the President of the Governing body of Fatikchari Degree College.

Mr Noor-a-Alam Choudhury is an eminent businessman of the country. He is the director of Progati Metal Industries Ltd., Uttara Cement Mills Ltd., Progati Steel Mills Ltd. and Proprietor of Talora Traders.

Mr A Jabbar Mollah was elected Commercially Important Person (CIP) in the year 2010 for his remarkable contribution in export sector of the country. He is the Managing Director of Jalalabad Sea Foods Ltd, Jalalabad Frozen Foods Ltd and Zabbar & Company Ltd.

Moreover, eminent business man of North Bengal Alhaj Sultan Mahmood Chowdhury and freedom fighter Major (Retd) Dr. Md. Rezaul Haque have been elected the chairman of the Executive Committee and the Board Audit committee of Board respectively.

The Financial Express/Bangladesh/ 4th June 2012

The World Bank (WB) has termed growth of Bangladesh's gross domestic product (GDP) at an estimated rate of 6.3 per cent in fiscal 2011-12 as healthy as it is higher than the developing nations' average of 5.5 per cent.

"But it is lower than the South Asia average of 6.5 per cent," Dr Zahid Hussain, WB senior economist told the reporters Sunday at a media briefing on Bangladesh Economic Update, held at a local hotel.

However, the GDP growth rate of Bangladesh in the outgoing fiscal will be considered impressive, given the scenario of vulnerabilities in the global economic environment, according to the WB.

Mr Zahid Hussain said: "There is healthy economic growth but macroeconomic vulnerabilities remain."

Heavy bank borrowing, declining trend in investment and volatile inflation are major threats to Bangladesh's macro-economic stability, the WB observed.

It said there are looming uncertainties in Bangladesh's leading export markets in Europe and the USA that are likely to affect the country's exports significantly.

The WB said there is little room for further credit expansion in fiscal 2012.

"Achieving 17 per cent broad money growth target will require credit growth to be more than 11.5 per cent in public sector and 2.1 per cent in private sector in the last quarter of the fiscal, 2011-12 from its end-March levels," Mr Zahid said.

The WB country director Ellen Goldstein, Director, Poverty Reduction and Economic Management, South Asia, Dr Ernesto May, lead economist Dr. Sanjay Kathuria and Communication Officer Mehrin A. Mahbub were also present at the media briefing.

Steps, the WB noted in its economic update on Bangladesh, will require to be taken to mitigate private sector crowding-out risks.

It said that industry, particularly construction and small-scale manufacturing, had driven the growth in fiscal 2012 while transport and financial intermediation led the growth in services.

"Agriculture and large scale manufacturing sectors have slowed down compared to the situation in the than last fiscal," Mr Zahid observed.

According to the WB update, private investment rate declined to 19.1 per cent in fiscal 2012 against 19.5 per cent in the previous year.

Lead country economist of the WB, Dr. Sanjay Kathuria, said the overall investment in Bangladesh is very low while adding that it has to go up by 6.0-8.0 percentage points of GDP to help accelerate the country's growth rate.

It said non-food inflation in Bangladesh in the outgoing fiscal was at the highest level in last two decades.

"This is primarily driven by expansionary monetary policies over the last two years," Mr Zahid added.

The WB, however, commended the efforts by the central bank for adopting a contractionary monetary policy to help combat the inflationary pressures.

Mr Zahid said monetary policy-actions take time to bring down the rate of inflation, expressing the view that inflationary pressures will be tamed if the recent tightening policy is not reversed.

He said the good news is that food inflation has come down to 8.1 per cent in April against 13.8 per cent in September last.

Mr Zahid said the Bangladesh Bank (BB) has rightly refrained itself from intervening in the foreign exchange market and this has allowed the market forces to play their proper role.

While making the opening statement at the media briefing, country director of WB Ms. Goldstein said the WB will continue to support Bangladesh's development efforts.

She said one challenge before Bangladesh is to effectively speed up implementation to deliver results on the ground.

She said the country's recent economic growth is quite healthy. The spillover effects of the Eurozone and oil prices are the threats to the country's sustained growth in the coming days, she noted.

She said Bangladesh has to prepare an effective strategy to combat the looming challenges and respond accordingly to achieve its goals.

Responding to queries, WB economists said recent ratings of Bangladesh by the S&P is quite all right. "We support it."

Replying to a specific question about the WB's stance on any fiscal move by the government of Bangladesh to facilitate declaration of "undisclosed money", Zahid Hussain said: "We're yet to know what measures will be taken about the undisclosed money under the budget."

"But we think that the government will not take any move which will encourage the sources and areas that generate black or undisclosed money."

The WB economists said issuing licenses for setting up new nine private commercial banks (PCBs) will create a competition to mobilise deposits.

Mr Kathuria, lead economist of the WB said: "This will add to competition for deposits and pose a challenge to the supervisory capacity of the central bank."

He observed that regulatory reforms in the capital market to ensure a stable trading environment were underway, adding that the pace of such reforms would need to be accelerated.

He said faster progress in exploration activities in Bangladesh is needed to meet the shortage of gas supplies. Steps should also be taken to ensure access to land for investment, he added.

Mr Kathuria said public private partnership (PPP) office is being staffed by professional managers but its progress so far has still remained at a slow pace.

He said reforms in trade liberalisation relating to tariffs, para-tariffs and customs procedures should be carried forward effectively to help promote trade.

There are vulnerabilities and uncertainties mainly due to global environment, he noted while underlining the need for putting stabilisation policies in place to address vulnerabilities and reduce uncertainties for business.

He said subsidy and government borrowings should be scaled down not to crowd out the private sector.

Mr Zahid said Bangladesh has three major risks ahead. These include slowed-down export operations due to Eurozone crisis, possible decrease of remittance earnings particularly from the Gulf region, and likely hikes in petroleum prices in the international market, he added.

A significant level of higher imports of petroleum products to feed the liquid fuel-based power plants and slow export growth have resulted in the decline of Bangladesh's current account surplus to US$ 456 million in March, 2012 from $710 million in July, 2011.

He said: "Deficit in its overall balance of payments (BoP) decreased to $419 million from $527 million in 2011."

However, this improvement in the overall BoP deficit may be temporary, he observed.

He said improvements in infrastructural facilities and availability of energy will be necessary to attract investment.

He said the government should take longer-term measures to address effectively the problems in the energy sector.

He said the country's fiscal deficit has widened, despite increases in revenue earnings. Recurrent expenditures are likely to overshoot the original budget target, he observed.

Agencies add: The GDP growth rate of Bangladesh, the WB in its update said, moderated from 6.7 per cent in fiscal 2010-2011 to 6.3 per cent in fiscal 2011-2012 due to unfavorable external economic situation and internal supply constraints.

Dr. Sanjay Kathuria said improving the investment climate and undertaking trade-related reforms would be needed to increase domestic and foreign investment which is essential for Bangladesh's accelerated growth. The investment: GDP ratio in Bangladesh will have to increase to 30-32 per cent from existing 24 per cent to help accelerate the growth rate, he observed.

About measures for whitening "black money", Dr. Zahid Hossain said, "We don't know what scheme is coming exactly to whiten black money. There shouldn't be any scheme what will ultimately encourage black money generation."

He said ideological aspects and reality will have to be considered in providing any scheme to whiten black money. "The ultimate impact of the black money will also have to be considered."

In her opening remark, Goldstein said, while Bangladesh's most recent economic growth remains quite healthy by developing country standards, there are several headwinds that could derail growth in the near future. "Spillover effects of recession in the eurozone and oil price increases are the two headwinds that pose the most serious downside risks to Bangladesh's growth from external sources," he said.

She said all that Bangladesh can do is to prepare to face such risks by creating policy space, so that it can respond appropriately and in time when risks arise.

However, these are not the only risks, she noted while stating that Bangladesh's ability to provide adequate infrastructure, energy and a business-friendly regulatory environment has also suffered in recent years. "If these issues are addressed, we feel Bangladesh will be able to overcome the impact of a weak global economy without much difficulty."

She said the Bank Group will remain engaged to support Bangladesh's development. "The Sixth Five Year Plan of the country is soon to enter its third year of implementation. The challenge now is to effectively speed up implementation to deliver results on the ground."

About the continuing macroeconomic pressures, the WB update noted that overall inflation "is in double digits and non-food prices rose 14 per cent in March 2012, compared to 4.3 per cent a year earlier. This has been driven by expansionary monetary and fiscal policies."

On the other hand, food price increases declined from 13.8 per cent in September 2011 to 8.1 per cent in April 2012 which is good news for the poor.

The fiscal deficit has increased, despite significant increases in revenue. Recurrent expenditures are likely to overshoot the original 2012 budget target, driven by larger-than-budgeted growth in subsidies and transfers.

The central government budget deficit increased by more than 2.5 times from July to January in fiscal 2011-12 compared to the situation during the corresponding period the previous fiscal, it observed.

With exports starting to decline in March 2012, pressure on the Bangladesh's balance of payments could intensify, the update cautioned.

"Uncertainty in Bangladesh's leading trade markets poses risks to accelerated growth. High unemployment, low business and consumer confidence, and volatility in financial sectors remain major threats to Bangladesh's two major export markets, Europe and the United States", it said.

In addition, the combination of current levels of inflation, fiscal deficit, and foreign exchange reserves mean that Bangladesh has very little policy space to respond to the crisis, unlike its situation during the last global economic and financial crises, it observed.

"Energy shortage poses as much of a risk to growth as do global uncertainties. The overall shortages of energy continue to deter fresh investments and expansion projects. Authorities need to proceed with longer-term solutions to the energy problem to ensure that the net additions to capacity already made can be sustained", he pointed out.

The update highlighted the need for coordinated macroeconomic strategies. "A coordinated policy response will be essential to restore macroeconomic stability and accelerate growth. Stabilization policies will need to focus on creating fiscal space, and containing government borrowing", it said.

"The longer-term growth outlook depends on acceleration of structural reforms to raise savings and investments rates, improve trade prospects, and ensure balance of payment sustainability. This would entail modernizing the tax regime and strengthening public financial management, and require increased tax revenues to address the large infrastructure deficit", the update pointed out.

Growth acceleration also needs urgent reforms to address the looming skills deficit and enable a continuation of manufacturing and export growth, it added.

It observed stagnation in investment still exists due to gas and power problem and the government is paying more subsidy in the fuel sector as its import has risen.

The Financial Express/Bangladesh/ 4th June 2012

The European Central Bank may cut interest rates again soon as the eurozone debt crisis deepens, but it will continue to insist that it is up to governments to find a lasting solution, analysts say. ECB watchers predict the central bank—which will hold its regular policy-setting meeting next week on Wednesday instead of Thursday owing to a public holiday—will not alter borrowing costs just yet this month.

But it could act in July as deepening fears about Greece and possible contagion to other countries push the 17 countries that share the euro back into recession, the analysts predicted. “The further escalation of the eurozone crisis has intensified the pressure on the ECB to take further remedial action,” said Capital Economics’ chief European economist Jonathan Loynes.

“But while president (Mario) Draghi may hold open the prospect of further support of the region’s banks after the meeting on June 6, he is likely to insist again that it is up to national policymakers to address their broader economic and fiscal problems,” Loynes said.

The ECB has never hesitated to act from the very beginning of the crisis.
It quickly reversed last year’s rate hikes to bring eurozone borrowing costs back down to an all-time low of 1.0 per cent and embarked on a hotly contested programme of indirectly buying up the bonds of debt-mired countries.

Most recently, in two so-called long-term refinancing operations (LTROs) in December and February, it pumped more than 1.0 trillion euros ($1.25 trillion) into the banking system to avert a dangerous credit squeeze in the euro area. Nevertheless, ECB officials have all along insisted that such measures cannot cure the root cause of the crisis—profligate spending by governments.

“Can the ECB fill the vacuum of lack of action by national governments on fiscal growth? The answer is no,” Draghi said again during a hearing at the European parliament last week.

The ECB argues that its overriding priority, even in times of crisis, is to keep a lid on inflation in the single currency area.

The latest data indicate that price pressures are indeed under control—area-wide inflation slowed to 2.4 per cent in May from 2.6 per cent in April and in Germany, the bloc’s biggest economy, inflation slowed to 1.9 per cent, its lowest level in 17 months.

Further up the inflation pipeline, too, the money supply expanded by just 2.5 per cent in April, a sharp slowdown compared with the previous month, despite the huge amounts of liquidity pumped into the system via the ECB’s anti-crisis measures. “With the inflation threat receding, the ECB has more scope to stimulate the economy,” argued Berenberg Bank chief economist Holger Schmieding.

The ECB will also publish its latest quarterly staff projections on inflation and economic growth on Wednesday. They are likely to be revised downwards, “leaving the door open for further policy accommodation,” said Newedge Strategy analyst Annalisa Piazza.

The Independent/Bangladesh/ 4th June 2012

Mir Mominul Huq, head of Mobile Banking, DBBL, Rubaba Dowla, CSO and head of m-commerce of Airtel, Miran Ali, managing director of Bitopi Group, sign an agreement in Dhaka.

Dutch-Bangla Bank (DBBL), Airtel and Bitopi Group signed an agreement on Mobile Banking Services at the DBBL Head Office.

Mir Mominul Huq, head of Mobile Banking, DBBL, Rubaba Dowla, CSO and head of m-commerce of Airtel, Miran Ali, managing director of Bitopi Group, signed the agreement in Dhaka recently, said a press release.

KS Tabrez, managing director of DBBL, Abul Kashem Md. Shirin, deputy managing director of DBBL and Adil Hossain Nobel, head of Corporate and SME Sales of Airtel were also present.

Under the agreement, employees of Bitopi Group will receive their monthly salaries in their DBBL Mobile Banking Accounts used by Airtel connection.

After receiving their salaries in their mobile accounts, the employees will be able to withdraw and deposit cash from any nearby agent, DBBL branches and ATMs, transfer money to other mobile accounts, buy goods and services from retailers and pay utility bills throughout the country and moreover will get the opportunity of banking with a Bank.

The Daily Sun/Bangladesh/ 4th June 2012