Experts for fresh boost to Pvt sector credit23 July 2014 Kazi Zahidul Hasan
Economists on Tuesday came up with the suggestion that the next monetary policy, which the central bank is going to announce on July 27, should focus on maintaining a low and stable inflation and credit boost in productive sectors to support an inclusive economic growth.
Bangladesh Bank (BB) is going to announce the policy at a time when the economy is facing challenges to sustain growth in wake of sluggish investment. The main factors that contributed to the investment crunch are political uncertainty, high interest rates, poor infrastructure and unsuitable law and regulations.
So, the main task of the new monetary policy should be accelerating credit to the productive sectors, they added.
"The central bank should give a big push in interest cut to ensure sufficient credit flow to the private sector," Prof Abu Ahmed, a noted economist of the country, told The New Nation yesterday.
He said, once the borrowing cost is reduced, it could help creating credit demands for the entrepreneurs who remained investment shy mainly due to high lending rates coupled with political uncertainty.
Steps should also be taken to abolish the unforeseen cost for getting the loan sanctioned, he added.
Prof Abu Ahmed observed that BB has been maintaining a 'contractionary' monetary policy in line with the suggestion of donor agencies that is also restraining credit flow to the productive sectors.
"This time, it (BB) should reform the previous policy, making it 'accommodative,' he said, adding, "The credit target should be revised upward to 18 per cent from 16.5 per cent, which was set at previous policy, to give a fresh boost to private sector credit.
He opined that a higher money supply to the market may slightly push up the inflation, but it may not hurt the economy much, once supply of the money is ensured to the productive sectors. "It will not only help flourish the industries but also contribute to the economy adding more jobs," he added.
Prof Abu Ahmed mentioned that the private sector credit growth during the last half of the previous fiscal hovered at 11 per cent, which fell 5.5 per cent short of the BB's monetary target, due to its restraining nature.
When asked, he said, the economy is now in a 'depressed mood' due to lack of necessary investment. "Only a credit boost to the private sector, easing cost of business, could help recover the economic depression," he added.
"As investment crunch is prevailing on the economy, the BB's new monetary policy should focus on providing space to create a greater lending appetite for the private sector to achieve an inclusive growth," said Dr AB Mirza Azizul Islam, a former adviser of the caretaker government.
He added, the key feature of the policy should be maintaining a stable inflation along with offering cheaper credit for the investors to stimulate investment for a higher economic growth.
The economist also urged the BB to take effective steps for bringing stability in the interest regime by reducing interest rate and spread between the lending and deposit.
Dr AB Mirza Azizul Islam, however, expressed pessimism over credit expansion target to be set at the new policy for the private sector when an uncertainty is prevailing in the country's political arena. "It is also creating a demand side constraint to private credit," he said.
"An investor never wants to put his investment at risk when there is a political uncertainty around. So, a peaceful solution to the prevailing political uncertainty is imperative to improve investment climate as well as to ensure free flow of credit to private sector," he suggested.
Dr AB Mirza Azizul Islam, who is also a visiting Professor of BRAC University, further said, investors will as usual remain reluctant to invest in new projects owing to lack of conductive business environment. "So, in my mind, monetary policy would not be effective unless a congenial business environment is established in the country," he opined.
"The BB's Monetary Policy Statement (MPS) for July-December period of the current fiscal would continue to focus on achieving its inflation targets while providing sufficient space in its monetary programme for lending to activities which support broad-based investment and inclusive growth objectives," said Dr Salehuddin Ahmed, a former governor of the central bank.
"There are various challenges prevailing in the macro-economic front, BB should take the challenges into consideration while formulating the new policy," he said, adding, "It should also take cautious stance to ensure macro-economic stability and contain government borrowing."
He said, the new monetary should focus on boosting investments and business activities that were severely hurt by the recent political unrest.