Monetary policy 2018 and its impact on economy

OPINION

Generally monetary policy defines as the process by which the monetary authority (ideally Central Bank) of a country controls the supply of money, targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary economics provides insight into how to craft optimal monetary policy.

Monetary policy is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in order to avoid the resulting distortions and deterioration of asset values.

Fazle Kabir governor of Bangladesh Bank declared the monetary policy statement for 2nd half of financial Year 2017-2018 on January 29, 2017 with a aim to moderate inflation and achieve sustainable growth. Though the target for private investment growth increase to 16.8 per cent from immediate past monetary policy target 16.2 per cent. But the actual growth in private sector investment in December 2017 is 18.10 per cent. In that sense the growth of private sector is squeezed. Moreover, after the monetary policy declaration Bangladesh Bank directed the banks to lower the advance deposit ratio (ADR) from 85 per cent to 83.50 per cent for conventional banks and 89 percent for Shariah-based Islamic banks from 90 per cent by June 2018, which will directly impact on the credit growth of the country. Some Banks have to adjust their existing credit to maintain the ADR. The impact of lowering ADR already impacted in the banking industry.

Banks are becoming aggressive to increase the deposit as well as lending rate. Some banks already increased the deposit rate up to 9.5 per cent which was 3-6 per cent few month back and some banks already increases the lending rate up to 15 per cent. In that case it seems that this year the credit growth will decrease and the cost of doing business will also increase in borrower level which may impact the overall economic activities of the country. Business may lose competitiveness in the international market. Due to massive import payment USD becoming stronger against taka. As a result remittances showing increasing trend. It’s a good sign. But on the other hand as the banks have to buy USD from the Bangladesh Bank and another way domestic currency going back to BB, where banks are losing lendable fund further. Though the inflation slightly raised from the projection 5.5 per cent to 5.7 per cent. Economists are sees it on lenient views because of our growing economic characters. We should have accepted it intelligently. Money circulation is an important catalyst in our stage of economic growth. So we think we should not bother too much on inflation. Our policymakers should show their strong commitment on fair administration in banking sectors which is still reveal the weakness of financial sectors.  Huge amount of the classified loan jeopardies the financial sectors, but bankers does not see any hope in near future due to lengthiness of the recovery process. Bankers are expecting strong commitment and support from the government where they also want to see Bangladesh Bank as catalyst.

Monetary policy 2018 and its impact on economy

OPINION

Generally monetary policy defines as the process by which the monetary authority (ideally Central Bank) of a country controls the supply of money, targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. Monetary economics provides insight into how to craft optimal monetary policy. Monetary policy is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in order to avoid the resulting distortions and deterioration of asset values. Fazle Kabir governor of Bangladesh Bank declared the monetary policy statement for 2nd half of financial Year 2017-2018 on January 29, 2017 with a aim to moderate inflation and achieve sustainable growth. Though the target for private investment growth increase to 16.8 per cent from immediate past monetary policy target 16.2 per cent. But the actual growth in private sector investment in December 2017 is 18.10 per cent. In that sense the growth of private sector is squeezed. Moreover, after the monetary policy declaration Bangladesh Bank directed the banks to lower the advance deposit ratio (ADR) from 85 per cent to 83.50 per cent for conventional banks and 89 percent for Shariah-based Islamic banks from 90 per cent by June 2018, which will directly impact on the credit growth of the country. Some Banks have to adjust their existing credit to maintain the ADR. The impact of lowering ADR already impacted in the banking industry. Banks are becoming aggressive to increase the deposit as well as lending rate. Some banks already increased the deposit rate up to 9.5 per cent which was 3-6 per cent few month back and some banks already increases the lending rate up to 15 per cent. In that case it seems that this year the credit growth will decrease and the cost of doing business will also increase in borrower level which may impact the overall economic activities of the country. Business may lose competitiveness in the international market. Due to massive import payment USD becoming stronger against taka. As a result remittances showing increasing trend. Its a good sign. But on the other hand as the banks have to buy USD from the Bangladesh Bank and another way domestic currency going back to BB, where banks are losing lendable fund further. Though the inflation slightly raised from the projection 5.5 per cent to 5.7 per cent. Economists are sees it on lenient views because of our growing economic characters. We should have accepted it intelligently. Money circulation is an important catalyst in our stage of economic growth. So we think we should not bother too much on inflation. Our policymakers should show their strong commitment on fair administration in banking sectors which is still reveal the weakness of financial sectors. Huge amount of the classified loan jeopardies the financial sectors, but bankers does not see any hope in near future due to lengthiness of the recovery process. Bankers are expecting strong commitment and support from the government where they also want to see Bangladesh Bank as catalyst.