BB warns of some inflationary pressure
Bangladesh may face some inflationary pressure in the coming months as general prices rise globally, said the central bank.
The monetary policy committee (MPC) of the central bank analysed the trend of commodity and food price indexes of the World Bank and the Food and Agriculture Organisation.
It said the global inflation may rise in the near future.
"As a result, inflation [in Bangladesh] may face a bit pressure in the near future," said the Bangladesh Bank in a press release.
Inflation is now on a downward trend as the government has taken some time-befitting decisions, including the reduction of the import duty of rice, according to the central bank.
The MPC expects that inflation will remain with the target, which is 5.4 per cent for the current fiscal year.
The central bank has revised monetary policy for the second half of the fiscal year by taking an expansionary stance is consistent with its previous programme.
The MPC kept the private sector credit growth unchanged at 14.8 per cent for 2020-21. It was 8.37 per cent in December.
The central bank has not changed its policy rate, keeping it at 4.75 per cent.
The central bank has decided not to change the private sector credit growth as the economy may get normalcy from the ongoing slowdown in the near future.
The public sector credit growth target revised down to 31.7 per cent from 44.4 per cent.
The central bank has changed the target given the weak credit demand from the government, said a BB official.
The MPC came up with the decision at a meeting on January 31 at the central bank headquarters.
The target of the reserve money (RM), which was set at 13.5 per cent in July last year when the BB announced the monetary policy, did not see any change.
RM is also called central bank money, monetary base, base money, or high-powered money. It is the base level for the money supply or the high-powered component of the money supply.
The growth of RM stood at 21.3 per cent in December.
The central bank's growth target for RM may surpass at the end of the fiscal year as remittance has been on the rise in recent months whereas import demand is low, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
Banks will be forced to sell their foreign currency to the central bank in the days ahead like in the recent months, which will push up the RM growth.
The central bank purchased American greenback worth a record $5.49 billion in the first half of the current fiscal year to keep stable the exchange rate of the local currency.
The central bank has lowered the growth of broad money to 15 per cent in contrast to its previous target of 15.6 per cent. Board money growth stood at 14.3 per cent in December.
Broad money is a category for measuring the amount of money circulating in an economy.
Lower credit demand from both public and private sectors may help the central bank reduce the broad money growth. The board money growth may accelerate if the growth of RM goes up, Mansur said.
The government has recently revised its GDP growth to 7.4 per cent for FY21 from 8.2 per cent.
For this reason, the central bank has lowered the growth of the board money, the BB press release said.
Mansur said the central bank should monitor the money market cautiously as there was a strong possibility of a widening of net foreign assets (NFAs) in the coming months due to higher remittance and lower imports.
"This will push the supply of the reserve money, which will widen the volume of the excess liquidity."
Excess liquidity in the banking sector surged 95 per cent year-on-year to Tk 204,700 crore in December, data from the central bank showed.
The central bank should prepare to intervene in the money market to mop up the excess liquidity to protect the economy from the asset bubble, the former official of the International Monetary Fund said.