New monetary policy targets financial stability

Staff Correspondent:Like the previous one, Bangladesh Bank has continued the ‘expansionary and accommodative’ mood in monetary policy statement (MPS) for the current fiscal 2021-22 (FY22).
“BB’s monetary policy stance for FY22 is designed to continue the ongoing expansionary and accommodative mode supporting the disrupted economic recovery process while maintaining appropriate cautions for overall price and financial stability,” said BB Governor Fazle Kabir at a written statement yesterday.
He said BB’s annual monetary and credit programs for FY22 are outlined making sure that there is enough room for money and credit growth to sufficiently support the targeted nominal GDP growth while remaining vigilant about commodity and asset price movements.
In case of any unexpected price pressure development or formation of any sporadic asset price bubbles due to the presence of ample excess liquidity in the banking system, BB will not hesitate to take appropriate policy action if required, throughout the year ahead, he added.
The BB chief informed that the programmed growth of broad money (M2) is set at 15.0 percent which is consistent with the targeted real GDP growth and CPI-based average inflation ceiling based on the assumption that some additional monetary supports are needed for maintaining desired income velocity of money and accommodating nearly 17.8 percent domestic credit (DC) growth in FY22.
The public and the private sector credit growth are projected to be annually grown by 32.6 percent and 14.8 percent respectively at the end of June 2022, he added.
He said the projection of public sector credit growth is made based on the Government’s expected borrowing needs from banks as envisaged in the national budget for FY22.
Fazle Kabir said given the on-going devastating waves of COVID-19 pandemic, the basic challenges that BB may encounter in the coming months are the restoration of full normalcy in lives and livelihood, and extending required flow of fund to the intended production pursuits.
Longer sustenance of the current coronavirus pandemic situation amid the continuation of global price hikes, and any unexpected crop loss in the coming seasons due to natural calamities might create some undue commodity price pressure down the road, he added. Besides, he said, the presence of a huge amount of surplus liquidity in the economy attributed to the on-going expansionary fiscal and monetary stances may also contribute to form some price pressures in the days ahead.
However, the BB governor said, despite the recurrent shocks of COVID-19 and consequent containment measures in terms of mobility restrictions and nationwide lockdowns, preliminary estimates suggest that Bangladesh economy has attained around 6.1 percent real GDP growth in FY21, significantly higher than last year’s estimated growth of 5.2 percent, supported by reasonably healthy growth performances in agricultural and industrial sectors aided by the Government and BB’s growth supportive unprecedented policy measures.
He said BB’s monetary policy has been broadly successful in taming inflationary pressure in FY21.
In spite of the unprecedented expansionary and accommodative monetary and fiscal policy stances along with supply chain disruptions due to COVID-19 related containment measures amid global price hike, the CPI-based average inflation declined to 5.56 percent (against the target of 5.40 percent for FY21) from 5.65 percent in FY20, he added.
He said the monetary policy stance and monetary programme outlined for FY21 were mostly successful in terms of injecting sufficient liquidity in the system accompanied by a lower market interest rate regime, containing inflation while ensuring stability in both the local and foreign currency markets.
Fazle Kabir said BB’s foreign exchange management and operation were also successful in maintaining the external competitiveness of Tk and ensuring stability in the interbank foreign exchange market.
The overall Balance of Payment (BoP) in FY21 witnessed a healthy surplus, supported by a significant inflow in financial accounts along with a relatively thinner current account deficit due mainly to very strong inward remittances growth and robust export earnings.
Relying on this BoP surplus, he said, BB’s foreign exchange reserve has reached a historical high of USD 46.4 billion at end of June 2021.