It believes the measure together with others will make its tight monetary policy meaningful in the current fiscal. Despite a cautious stance, the outcome at the end of last fiscal was not up to the expectations.

The central bank's half-yearly [July-December] monetary policy statement released yesterday also hinted that cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for the banks might be raised. In that event, the financial organisations will have to stymie their credit flow towards the private sector.

The planned increase in cash reserves will tighten the liquidity position of the banks and help the BB go on pursuing the strict policy and keep the inflation target on course.

Currently, the banks have to keep 5 percent of their liabilities in CRR and 13 percent in SLR.

The policy statement was released at a press conference at the BB office in presence of Governor Salehuddin Ahmed.

"In spite of a cautious monetary policy pursued by the Bangladesh Bank, the actual growth of several monetary aggregates exceeded the programme levels," Salehuddin Ahmed said quoting from the policy statement.

"Considering the unfolding price developments, we may review the SLR and CRR for the banks including Islamic ones which have remained unchanged since 2005," he added.

The governor, however, said private sector would receive necessary policy attention to achieve the desired level of economic growth.

At the same time, the central bank would keep a close watch so that priority sectors like agriculture, small scale industries and employment are not adversely affected due to its contractionary monetary policy.

The policy paper stated that the BB has already decided to introduce a refinancing scheme for housing loans for lower and middle income groups and the step would give an impetus to the housing sector that provides a large number of people with employment.

"In order to boost credit in the agriculture sector, Bangladesh Bank has requested the private commercial banks to come forward, and in response to the call, they have assured [us] that they will provide over Tk 1,000 crore as credit for agriculture over the next 12 months," Salehuddin told reporters.

He noted, "Monetary and fiscal policies are not enough to contain the inflationary pressures; we will have to make the supply side more efficient."

Deputy Governors Nazrul Huda and Ziaul Hasan Siddiqui, Economic Adviser Habib Ullah Bahar and Executive Director KM Jamshed uz Zaman were also present at the press conference.

The policy statement said, "The BB's monetary stance will continue to be cautious in FY08 keeping in view the prevailing price situation and enhanced excess liquidity emanating from moderating private sector credit demand and increase in net foreign assets."

Despite the adoption of a cautious policy, growth in both money supply (estimated) and reserve money has exceeded the programme levels at the end of June 2007, it noted.

"Against this backdrop, a further review of policy interest rates may be necessary. Since the bond/bill market is not yet developed to reduce the inflationary expectation in the longer term, interest rate of the instruments of the shorter tenor may have to be revisited relative to that of longer term," the statement continued.

Turning to the inflation situation, the policy statement said annual average inflation went down to 6.72 percent in January 2007 from 7.16 percent in June 2006.

Thereafter, annual average inflation rate showed an increasing trend owing to rises in prices of fuel, metal, food grain and other essentials in the international market coupled with supply problems in the domestic front, like selective depreciation in exchange rate, revision of fuel prices, production shortfall of food items and political unrest. The inflation rate reached 7.06 percent in May 2007.

The BB paper projects a GDP growth of 7 percent for the FY08.

Explaining the growth situation, it said projection for real GDP growth for FY07 has been revised down to 6.5 percent following setbacks in the agriculture sector that experienced a moderate growth mainly due to inadequate rainfall, distribution problems relating to fertilizer, and shortages of power for irrigation.

"Growth in the industry sector continues to be strong in FY07 reflecting steady growth in export-oriented manufacturing and increased domestic demand. Industry and service sectors are expected to continue the robust performance in FY08," the paper expects.