Monetary policy may be expansionary

The central bank yesterday held its final round of meetings to lock down an expansionary monetary policy for the first half of the fiscal year.

The main aim of the monetary policy -- due to be announced tomorrow -- would be to contain inflation while achieving higher economic growth in line with the budgetary target. The private sector credit growth target may be set between 16.5 percent and 17 percent.

In the immediate past monetary policy, the private sector credit growth target was set at 16.5 percent.

As of May, credit growth was 16.03 percent. In contrast, the private sector credit growth stood at 16.78 percent in June last year.

“In recent times, inflation has been on the rise due to food price spiral -- the new policy will keep an eye on this,” said a high official of the Bangladesh Bank, adding that the private sector credit growth goal posts will be shifted much.

There will be no changes in policy rates though, he added.

The government has set the GDP growth target of 7.4 percent and inflation target of 5.5 percent for 2017-18.

The monetary policy must particularly look to contain inflation, which is on an upward trend, due to a rise in food prices, said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.

He, however, said it will be difficult to contain inflation within 5.5 percent this year.

Food inflation almost doubled in the rural areas to 7.2 percent in June this year from 3.44 percent a year earlier.

In the urban areas, food inflation was 8.21 percent last month, up from 6.06 percent a year earlier.

Inflation rose because of the rice price spiral. In 2016-17 coarse rice price stood at Tk 39.18 per kilogramme on average. It was Tk 45.62 a kg in June, according to data from the Bangladesh Bureau of Statistics.

In 2015-16, coarse rice price averaged Tk 36.42 per kg.

“The central bank's role is minimal in containing food inflation,” said the BB official.

Even then, the BB has taken a number of steps to make rice imports easier. If required more steps will be taken in future, he said. 

“Thanks to these steps, rice imports are increasing,” he added.

Last fiscal year, letters of credit for 6.91 lakh tonnes of rice were opened. Of the amount, 4.37 lakh tonnes were in the month of June alone.

The central bank will remain cautious so that credit to unproductive sector does not increase, in order to contain non-food inflation, the BB official said, adding that banks would be encouraged to give more loans to productive sectors, and small and medium enterprises.