Market raises toast to expansionary monetary policy | The Daily Star
12:00 AM, July 30, 2020 / LAST MODIFIED: 01:15 AM, July 30, 2020

Market raises toast to expansionary monetary policy

Stock investors yesterday welcomed the expansionary monetary policy unveiled by the central bank, hoping it would rejuvenate the battered economy and persuade institutional investors to pour money into the capital market. 

The central bank, in its policy for the next six months, brought down the bank rate to 4 per cent from 5 per cent.

It also proposed a cut in the repurchase agreement rate from 5.25 per cent to 4.75 per cent to make funds available for banks at a cheaper rate.

"When the policy rate is slashed, institutional investors get interested in pouring money into the stock market to earn more profits. So, this is a welcoming move," said Shahidul Islam, chief executive officer of VIPB Asset Management Company, which manages four funds worth Tk 250 crore.

Now, risk-free investments such as government bonds would offer lower rates and stocks' valuation would be lucrative, he said.

"Institutional investors now can come to the market. As a result, an immediate boost in the stock market can be seen," he added.

The monetary policy would be good for the stock market, said Md Moniruzzaman, managing director of IDLC Investments.

The lowering of the rate will allow banks to bring down the lending rates under 9 per cent, which will be good for businesses and the economy.

"When the economy gets a shot in the arm, the stock market gets expected results automatically," he said, adding that now some funds might come to the stock market.

General stock investors were also buoyant from the monetary policy and because of a milder impact of the pandemic on the earnings of listed companies.

Yesterday, DSEX, the benchmark index of the Dhaka Stock Exchange, rose 14.66 points, or 0.35 per cent, to 4,171.20.

Turnover, another important indicator of the market, surged to Tk 399.52 crore.

"The monetary policy statement was expected to be expansionary. So, investors started making purchases from the first day of the week," said a merchant banker preferring to remain unnamed.

On the other hand, most of the stocks with good performance records have fallen to their five- to six-year lows, so investors are optimistic, he said.

This is true that stocks will have lower opportunity costs now but some problems persist in the market, said a top official of a listed bank.

Market-determined pricing mechanism has been tampered with the imposition of the floor price on 19 March. As a result, the real prices of stocks can't be judged, the banker said.

The Bangladesh Securities and Exchange Commission (BSEC) set the floor price to halt the fall of the index amidst the pandemic.

BSEC knows well that the floor price is not good for the market, said a top official of the regulator.

"We want to lift it but small investors are urging us not to withdraw it. So, we are waiting for a boost."

The stock index has been rising for the past month buoyed by the news that the pandemic had a milder impact on the economy in comparison to other countries and the confidence in the present commission, he said.

DSEX rose 5.32 per cent to 4,171 points in the last one month.

Listed companies' profitability, strong fundamentals and good corporate governance are key to boosting the stock market, according to Islam of VIPB.

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