Editorial
BB's monetary policy stance
How pro-active is it?
Given the backdrop to the monetary policy announced by the central bank governor Dr Atiur Rahman, he could not probably get more sure-footed than he has actually managed to be. The policy formulation perforce had to respond to external and internal shocks triggered by the global economic downturn. Despite signs of recovery, effects of global slowdown are predicted to linger until mid-2010. In the rather long interregnum, two kinds of scenario are likely: if the global recovery falters, it would slacken export growth, workers' remittance inflow and investment activities thereby affecting GDP growth. At the same time, if global recovery is faster it won't be without some risks in the shape of aggravating domestic inflation due to increasing global commodity prices.
Now, the present monetary policy, based as it is on near term outlook for growth and inflation is a half-yearly one. Thus, there is a certain ad interim and tentative nature about it. The good point though, is it retains flexibility and scope to attune and adjust the policy directions to the changing realities. The principal aim of the monetary policy is to help attain highest sustainable output growth through investment but without triggering escalation of inflation.
For quite sometime in the past we have had a contractionary monetary policy with the attendant effect of a credit squeeze on the private sector. As a result, investment has been sluggish. Now credit flow to the private sector is sought to be enhanced. It is as well that this is envisaged, because the banks have had an excess liquidity. The policy lays emphasis on the need for lowering lending interest rate and the banks' fees and charges. Insofar as reducing lending rate goes, it could not be isolated from the prospect of lowering the deposit rate thereby affecting saving.
Aside from bolstering manufacturing and export sectors, we believe the credit needs of agriculture and SMEs will have to be met if we are to rejuvenate the economy. While the BB's recently announced agriculture credit programme, if implemented fully, through cooperation from banking and financial institutions will facilitate growth of output, the process must be duly complemented through timely and adequate supply of irrigation, fertiliser, seeds and other inputs.
The growth of investment and output is not entirely dependent on a monetary policy, although it is an important tool. Among the other contributing factors will be utilisation of the Annual Development Programme (ADP) and removal of infrastructural inadequacies, especially the power and gas constraints.
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