Bangladesh Bank preparing ‘supportive’ monetary policy

This year, the Bangladesh Bank is going to abandon any event to announce the monetary policy statement – one of the fundamental tasks of a central bank.

A monetary policy has two key objectives; one is to contain inflation within the targeted ceiling and the second is to support attainment of the targeted real gross domestic product (GDP) growth. 

The central bank will publish the monetary policy for the 2020-21 fiscal year on its website this Wednesday, a senior official of the institution told The Business Standard on Sunday.

"This year, we are going to prepare a supportive monetary policy to achieve the [GDP growth] target amid the novel coronavirus pandemic. We are trying to narrate the projection elaborately," said the official, who is directly involved with the team preparing the policy. 

The Bangladesh Bank is going to announce the monetary policy at a time when the country is set to observe a sharp economic fall due to the outbreak of novel coronavirus in March.

Moreover, private sector credit growth plunged to as low as 8.61 percent in June this year, against the targeted growth rate of 14.8 percent in the 2019-20 fiscal year.

"As the central bank has formed some refinance schemes to support the banking sector in implementing stimulus packages, and as it has also formed a Tk2,000 crore credit guarantee scheme, these funds will be included in the upcoming monetary policy," the official added.

The first week of July, the Bangladesh Bank collected opinions online on the monetary policy from stakeholders. 

"We are trying to reflect the opinions of stakeholders in our policy. However, it is not possible to take into account all views," the official said.

Every fiscal year, the central bank formally declares the monetary policy statement – twice a year. However, last fiscal year, it said the statement would be formally declared once a year from then onwards while the half-yearly monetary policy statement would be published on its website.  

Although it is now time to declare the monetary policy formally, the central bank has decided to abandon a public gathering to abide by health guidelines. It has not even prepared to arrange a virtual press meet, said a Bangladesh Bank official.

In FY2019-20, dismal private sector growth was attributed to the Tk85,231 crore the government borrowed from banks. Bank borrowing increased to 55.51 percent last fiscal year despite the central bank projecting that the amount would stay confined to 37.7 percent.

The same trend may be observed in FY21 as the government has fixed a Tk84,980 crore bank borrowing target for this fiscal year.

The government has set a GDP growth target of 8.2 percent and the inflation growth containment target at 5.4 percent for the current fiscal year. 

"The central bank will set the money supply target to support achieving both targets," a central bank official said.   

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said, "The huge logjam created by any crisis of this proportion must be cleared with enough injection of liquidity for the wheels of the economy to start turning again."

"The amount of liquidity necessary will be extremely difficult to predict," he stated, adding the Bangladesh Bank should err on the side of "injecting a little too much instead of injecting too little" under the current circumstances.