Editorial
BB's pro-active monetary policy
Cooperation of the banks imperative
Bangladesh Bank governor Dr Salehuddin Ahmed's announcement of an expansionary half-yearly monetary policy last week, setting aside IMF's advice for a tighter policy has generated favourable reactions from economists and trade and industrial circles. What it means is the BB has gone for expansionary credit growth with the objective of ensuring reasonable price stability and providing support to a sustainable and high growth paradigm.
There is a risk involved in this approach which cannot be made a short shrift of. If the Bangladesh Bank fails to direct credit to the productive sectors of the economy to replenish the supply side, the existent high inflation rate, largely caused by external factors beyond our control, risk being further fuelled. The high inflation rate is much more supply-driven than demand-pushed requiring a containment strategy in which higher domestic productivity is a key element leading to strengthening of the supply side.
This logic is incontrovertible. Yet, one may like to argue that bumper boro harvest has not been accompanied by lower rice prices. True, but the inhibitory factors are to be found in transportation and storage shortcomings coupled with hoarding and uncertainties surrounding import. So, the point is proved rather than disproved.
Coming to the industrial sector, the record 10 percent growth in 2006-07 has plummeted to 6.87 percent. Similarly, the service sector has shown a sluggish trend.
The new monetary policy has therefore prioritised unhindered flow of private sector credit to the economy's productive sectors such as agriculture, small and medium enterprises and rural economy as a whole. The banks will have to play a crucial role there. There are private banks which have limited number of rural branches, if at all, and very few are investing in agriculture. This is asking the banks to channel funds from high profit earning trading and other activities to the real productive sectors. The banks need to balance their profit motives with some development ethos.
Significantly, if the banks can rationalise the interest spread between deposit rate and loan rate that would be a big help in boosting investment and productivity. The rate of interest in our country is among the highest in the region leaving room for a downward revision.
One more important aspect of boosting productivity would be to import more of capital machinery and raw materials rather than pander to the high consumption-orientation of import.
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