Business Initiative Leading Development (BUILD) has expressed concern that central bank’s lowering private sector credit growth target may impact further on already gloomy employment situation.
Bangladesh Bank on Thursday announced monetary policy for the first half of FY22, bringing down private sector credit growth target to 11 percent from FY21’s last half’s target of 14.8 percent.
The central bank’s move came as its private credit growth target was largely undershot in the second half of FY2021. Finally, 8.4 percent growth was achieved in this segment against 14.8 percent target. Banks have an excess liquidity of Tk 2.31 trillion as of June 30, 2021 because of lower private sector credit growth and a sluggish investment environment.
In this situation, bank investment may be diverted to alternative sectors such as stocks and bond or even in real estate business, BUILD suggests.
Apprehending asset bubbles, it called for addressing excess liquidity problem by encouraging alternative investments.
Service sector could be a good opportunity for which supportive policies need to be announced, it said.
Although the government announced 28 stimulus packages worth Tk 1.35 trillion to offset COVID-19 impacts, disbursement of the fiscal incentives to the required areas are limited, it observed.
A significant share of micro, cottage and small entrepreneurs are informal businesses that are suffering because of the small amount of monetary support. Bangladesh Bank’s policies to support these segments need to be more comprehensive, it noted.
The country needs to promote investment and ensure maximum utilization of the existing stimulus packages as well as the Credit Guarantee Schemes for immediate rescue of CMSMEs.
Government may announce a specific 2nd round of SPs with an allowance for new employment as well as retention of employment for encouraging investors. While there is a huge amount of liquidity in the Banks, there could be a good use of this liquidity in the areas so that velocity of money increases, the think tank said.
Overseas employment rate has fallen drastically in the last two years and many of the 0.4 million repatriated Bangladeshi workers are languishing without earning sources. MPS could take a stance for this segment through a special scheme that may be a credit-based investment opportunity, BUILD suggested.
The MPS should use the tools and instruments such as open market operations, reserve requirements, credit guidance and collateral policy for keeping the monetary and other related indicators favourable for the economy, it observed.
BUILD called for quarterly MPS, saying that the year-long monetary policy is less effective as the determinants like credit demand, inflation, capital market indices, current account & capital account balance, and foreign exchange rate index of monetary instruments fluctuate very frequently.