Monetary policy to beef up capital market

The central bank is set to unveil its first half-yearly (H1) monetary policy for the current fiscal year, 2019-20, on Wednesday, with the policy rates likely to remain unchanged.

The monetary instrument is also expected to continue its policy support for the country's moribund stock market.

Bangladesh Bank (BB) governor Fazle Kabir will announce the monetary policy statement (MPS) for the July-December period of the FY 2020 aimed at achieving sustainable economic growth by curbing inflationary pressures on the economy.

The policy rates, including CRR (cash reserve requirement), SLR (statutory liquidity ratio), Repo and Reverse Repo, may remain unchanged for H1 of FY'20, according to central bank officials.

They also said the central bank is finalising the next MPS giving priority to employment generation through boosting investments in the productive sectors.

As part of the strategy, the BB is likely to focus on boosting loans for micro, small and medium enterprises (MSMEs) and the agriculture sector along with microcredit to help create job opportunities across the country.

The private sector credit growth target is likely to be fixed considering the overall economic situation along with fund requirement for the government to finance budget deficit, they added.

The latest trend in inflationary pressures, particularly of core inflation, will be considered while determining the private sector credit growth ceiling for H1 of the FY '20, they noted.

The sector's credit growth came down to 11.29 per cent in June 2019 on a year-on-year basis from 12.16 per cent a month ago, the BB's latest data showed.

This growth was 5.21 percentage points lower than the BB's target of 16.50 per cent for the H2 of FY '19.

"The private sector credit growth target is likely to be fixed at 15.50 per cent for the first six months of this fiscal," a BB senior official hinted.

In the H1 MPS, the central bank is likely to maintain its cautious position on containing inflationary pressure on the economy, as the average core inflation has witnessed an upward trend in recent months.

The core inflation rose to 5.48 per cent on an annual average basis in June 2019 from 5.44 per cent a month ago. It was 4.65 per cent in December 2018.

Currently, the central bank is measuring the core inflation, excluding non-food and non-fuel components from the consumer price index (CPI).

The prime objective of computing core inflation is to exclude the components of headline inflation, officially known as general inflation, which is caused by non-monetary events, as these price changes do not reflect the impact of underlying monetary policy decisions.

The MPS is likely to focus on bringing down the volume of classified loans in the banking sector through strengthening recovery drives across the country.

The volume of non-performing loans (NPLs) jumped by more than 18 per cent to Tk 1,108.73 billion in the January-March period of this calendar year from Tk 939.11 billion in the preceding quarter.

"We may also lay emphasis on ensuring good governance in the banking sector in the next MPS," the central banker said without elaborating.

The latest situation of the capital market along with foreign exchange and money markets will be included in the next MPS, according to the central banker.

The central bank may give a signal that its policy support would continue in the coming months to help revamp the country's ailing capital market.