BB to set higher credit growth target

Bangladesh Bank may set the private sector credit growth target at 16.5 percent in the monetary policy for the first half of the fiscal year, in keeping with the present momentum.

Governor Fazle Kabir is set to announce the monetary policy today for the first half of fiscal 2016-17 in what will be his first big policy statement since he took over the reins from Atiur Rahman in March.

In June last year, the BB set the private sector credit growth target for fiscal 2015-16 at 14.8 percent, but the mark was crossed in May and it stood at 16.4 percent at the end of the fiscal year.

"The private sector credit growth target for the current fiscal year will be set keeping in line with the present trend," said a BB official.

The government forecast the economic growth pace to be 7.2 percent for the current fiscal year, while it set the goal of containing inflation within 5.8 percent.

In the monetary policy, the inflation target may be set at 5.5 percent, lower than the government target.

However, no change will be brought to the policy rates as they were cut by 50 basis points in January.

The BB official said after the Eid vacation, they held a stock-taking meeting with the former central bank governors and economists. Most of them recommended taking slightly moderate expansionary monetary policy.

After the recent militant attack in Bangladesh, businesses are going through a sluggish phase. "Keeping this in mind, we have raised the credit growth target slightly."

Referring to the central bank's discussions with the economists, former BB governor Mohammed Farashuddin said additionally special care will be needed to minimise the effect of escalating terrorist activities.

"I think the monetary policy should be accommodative. The growth achieved in the private sector credit should be encouraged," said Salehuddin Ahmed, another former BB governor.

In the present context, giving much emphasis on inflation is not necessary, he said.

If investment and growth increase, people's purchasing capacity will automatically increase. In such a scenario, it would not be appropriate to lower private sector credit growth to lay stress on containing inflation, he added.

Zahid Hussain, lead economist of the World Bank's Dhaka office, is of a different opinion on this.

"It will be important to maintain policy continuity on the side of caution rather than aggression, particularly when the fiscal policy is moderately expansionary."