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DCCI Reaction on Monetary Policy
Bangladesh Bank, the central Bank of the country has announced the Monetary Policy for FY2021-22 today on 29 July 2021. Dhaka Chamber of Commerce & Industry (DCCI) thinks that the MPS announced is more or less expansionary, accommodative but a conventional one considering the current Covid-led economic situation. The MPS largely aimed at rebounding the Covid implications on various avenues of overall macro-economic conditions of the country.
The public sector credit growth was targeted 32.6% and private sector credit growth was targeted to 14.8% at the end of the Fiscal Year 2022 which is apparently a bit optimistic. The recurrent covid outbreak may hold back the expected target as businesses are not aggressive in new investment amidst this uncertain time. If the overall economy and private sector ecosystem does not improve or recover, this target cannot be realized.
Government has allocated a budget around Taka 1.28 trillion for social safety net which may force the government to borrow more to manage core economic operations and other expenses that may affect private sector credit flow. The private sector credit flow was recorded 8.4% at the end of FY21. The weak and shattered business environment, supply chain system around the world affected new investment weakening private sector credit flow as a whole. It is worth pointing that almost 90% CMSMEs are operating at reduced capacity having limited intention to invest in most instances.
On the other hand, the current account balance looks little better compared to the previous years as export growth was quite substantial recorded 15.2% growth accompanied with substantial remittance earning.
To improve the capital market, repo rate from existing 6.00 percent to 4.75 percent applicable for creating a special investment fund of Taka 2 billion to be constituted by each bank for investing in the stock market beyond their market exposure limit. However, to revive the capital market confidence no substantial directives or course of action were seen.
To encourage investment in Capital market, the return of investment or interest on Savings Certificate, Postal saving and Pensioners’ Saving Certificate need to be rationally reduced at par bank instruments like FDR, and return from bond, equity like a level playing field. But these are missing the MPS.
For revamping the CMSMEs, a good number of fiscal and non-fiscal assistance were given through various mode. But the MPS announced has not given any directives or time-bound roadmap on how to implement these facilities given to the CMSMEs.
The exchange rate of Taka against US dollar was not vulnerable. Rather value of taka appreciates in some instances that helped to maintain sustenance in international trade of Country.
The MPS is as usual and there is no innovative approach or course of actions especially to motivate the private sector. However, focused course of action and coordinated implementation techniques of Banks, NBFIs in financial sector and other regulatory stakeholders backed by strong monitoring of central banks are needed down the road.
Published on: 2021-08-01