Key points of the new monetary policy for FY21

Bangladesh's economy, like everywhere else, has had to bear substantial losses, resulting in a significantly lower real GDP growth for FY20 than the target as well as actual growth (8.15 percent) recorded in FY19.

The annual average non­food inflation, particularly concerning medical care and health expenses, and disruption of supply chains due to coronavirus pandemic were largely responsible for this higher inflation.

Here are the key points:

• The annual average CPI-based general inflation stood at 5.65 percent in FY20, slightly up from the target (5.50 percent) ceiling as well as actual inflation of 5.47 percent in FY19.

• A comparison of FY20's programme versus actual developments indicates that the broad money (M2) growth (12.7 percent) remained very close to the target ceiling of 13.0 percent. The domestic credit growth fully moved together with the programmed path during the first half of FY20, though slightly plunged in the third and fourth quarters due mainly to a slower than programmed growth of private sector credit.
•  The monetary policy stance and programme executed in FY20 was largely successful in narrowing the current account deficit from 1.7 percent of GDP in FY19 to primarily estimated at 1.5 percent of GDP in FY20. The government's 2 percent incentive programme and the Bangladesh Bank's initiatives of easing money transfer process along with the policy of gradual depreciation of taka against US dollar played vital roles in augmenting remittance inflows (10.9 percent growth) in the country in FY20.
   
• The Bangladesh Bank's policy supports of reducing CRR and repo rate, alongside providing enhanced repo and refinance facilities to banks with timely intervention in the foreign exchange market, helped maintain normalcy in both the taka and US dollar interbank markets.
   
• The central bank's monetary policy stance and monetary programmes for FY21 are essentially expansionary and accommodative for all growth support needs without impairing attainment of the targeted inflation rate, subject to any such mid-course modifications as found necessary.
   
• Despite countrywide unprecedented lockdown during March 26 to May 30, owing to the Covid-19 outbreak, the uninterrupted banking, and mobile financial services for all in the country have been effectively maintained by the Bangladesh Bank. 
   
• The central bank has used its available monetary policy instruments, such as cash reserve ratio (CRR), repo facility (interest rate and tenor), refinancing facility and other monetary condition easing initiatives necessary for liquidity in market including the recent formation of a credit guarantee scheme to support cottage, micro and small enterprises that lack adequate assets to pledge for bank loans.
   
• This monetary policy statement is proposing a further cut in the overnight repo rate from 5.25 percent to 4.75 percent and a reduction of reverse repo rate from 4.75 percent to 4 percent, ensuring the availability of less costly funds for banks and rationalising the policy rates' corridor.
  Moreover, the Bank Rate has been considered to be reduced from 5 percent to 4 percent to rationalise it with the current interest rate regime.
   
• There are several risk factors to the attainment of FY21 monetary policy programme objectives arising from the Covid-19 pandemic, floods, international sluggish economic and volatile price situations resulting in slower than ever expected economic activities, formation of unexpected commodity price bubbles, and building-up of undue bad assets of banks. The Bangladesh Bank will remain fully engaged and vigilant in monitoring and taking timely actions, where necessary.