In its new monetary policy statement (MPS) announced yesterday, Bangladesh Bank (BB) has said it plans to curb reckless lending by banks.

The new MPS has also set a private sector credit growth target of 16.8 per cent against the previous projection of 16.3 per cent. However, the target is significantly lower than the growth at over 18 per cent in December 2017.

In the new MPS, unveiled by BB Governor Fazle Kabir, commercial and scheduled banks as well as financial institutions have been encouraged to avoid investing in unduly high-risk, medium- or long-term projects of corporate borrowers.

Fazle Kabir has also said that the inflation rate had risen to 5.7 per cent in December last year from the previous target of 5.5 per cent.

He said repo and reverse repo policy interest rates would, for the time being, remain unchanged at 6.75 per cent and 4.75 per cent respectively.

Replying to a question, Fazle Kabir said the monetary policy for January to June 2018 would help generate employment.

If the responsibility for the payment of liability arises to the satisfaction of depositors and widespread public interest, effective application of the provisions of Bank Company Act would be ensured to prevent such irresponsibility, Fazle Hossen said, adding, “This will discourage both irresponsible or unreliable outrageous irresponsibility.”

With this, banks will increase the quality of loan and expand finance for eligible actual productive enterprises and inclusive environment-friendly development goals of the government.

The MPS has said the sharp rising trend, upturns in imports, and credit to private sector appear to indicate a much-awaited robust trend in investment and output activities, supported by progress in addressing infrastructural deficiencies, robust domestic demand, and a broad-based pickup in global output and trade growth.

Besides the increase in food grains import due to flood-related crop losses and depletion of the public food grain buffer stocks, the overall increase in imports  mainly comprises capital machinery and production inputs. This bodes well for rise in growth, but also poses near-term

challenges of containing

monetary growth-driven inflationary pressures and of protecting external sector balance of payments (BOP) sustainability.

Excess liquidity from FY17 has largely met the monetary demand created by increased economic activity, keeping domestic credit (DC) growth at 14.5 per cent in line with the 14.5 per cent HI FY18 programme target, even with the private sector credit growth (18.1 per cent) substantially overshooting the 16.2 per cent HI FY18 programme target.

Moderation of the transient external imbalance from credit-fuelled high import growth to a sustainable trend will be a key priority for monetary and macro-prudential policies in H2 FY18, besides keeping in check the inflationary risks from rising global commodity prices and any spillover from food to non-food inflation due to undue exuberance in domestic credit expansion.

The H2 FY18 monetary programme and its attendant macro-prudential measures will seek to address this priority mainly by intensive and intrusive supervision by focusing on quality and sector-wise composition of credit flows rather than by any blanket curb restricting access to credit for productive pursuits.

It says given the global and domestic inflation outlook, the H2 FY18 monetary programme keeps the domestic credit growth ceiling unchanged at 15.8 per cent, which is adequate to accommodate the targeted 7.4 real GDP growth with up to 6 per cent annual average

inflation.

A continuing negative trend of the government’s bank borrowing is projected to leave room for a 16.8 per cent FY18 private sector credit growth against the previous projection of 16.3 per cent.

Reserve money (RM) growth and its attendant inflationary impact will remain moderate in H2 FY18, aided by the government’s likely negative or small bank borrowing,

while the expected near-zero net foreign assets (NFA) growth due to high import

payment outflows will result in moderation in broad money growth to 13.3 per cent, against the earlier projection of 13.9

per cent.