Jan-June MPS likely to miss many vital targets

Dhaka,  Wed,  23 August 2017
Published : 15 Jul 2017, 00:38:59

Jan-June MPS likely to miss many vital targets

Economists point to central bank’s limitations
Jasim Uddin Haroon

Key programmes under the January-June monetary policy statement (MPS) might have missed the mark with performances on almost all estimates falling far below the targets.

As of May, by official count, the domestic credits consisting of public and private ones increased just over 11 per cent against the target of 16.4 per cent up to June.

The broad money expanded by 11.69 per cent as of May against the target of 15.5 per cent up to June.

Net domestic assets increased by 12.24 per cent as of May against the programmed 17.3 per cent until June last.

On the other hand, the net foreign assets (NFA) increased much higher than its estimates. In the MPS for the second half of the financial year 2017, NFA had a target of just over 10 per cent.

The central bank in its monetary policy had predicted that inflation would remain locked within a range of 5.3 to 5.6 per cent. But, until June, the 12-month average broke the bracket to rise higher by at least 0.62 percentage points.

Economists view that this gap between actual performances and the estimates means that the central bank failed to achieve its monetary goals 'due to central bank's own limitations and some global realities'.

They all think the targets set in the MPS would remain unmet.

Dr Mirza Azizul Islam, an adviser of the caretaker government and now a professor at Brac University, told the FE that the central bank cannot apply all its instruments to get to the goals.

"If the government does not borrow from the banking system, then what can the central bank do here?" he asked.

He noted the central bank's limitations over reduction in the lending rates, thus squeezing investment in the private sector.

The former finance adviser said the country's banks, especially the state-owned banks, do not operate efficiently and, hence, the lending rates remained higher than the deposit rates.

Dr Islam said the estimates of inflation and growth are usually prepared by the central bank globally but the country is an exception in this matter.

"What a fun here--such vital estimates are prepared by the finance division and the central bank works to accommodate with it," he said.

Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank Group, found the private sector having remained stagnant for long.

He said credits to the private sector increased due to the rise in imports, "not for new business expansion or growth in the export sector".

Imports in terms of the opening of letter of credits (LC) expanded by nearly 15 per cent during the July-May period. It was negative by just over 2.0 per cent in the same period a year before.

He said inflation is also higher than target for global and some domestic factors, especially price rises due to the floods in some paddy-growing areas.

Food Minister Kamrul Islam in Parliament on June 29 said rice production could drop by around 600,000 tonnes in the haor areas following floods.

Dr Hussain noted that government credits in the period under review in actual terms were repayment of its earlier borrowings, leading to low growth in overall domestic credits.

As of May last, the credits to the public sector accounted for a negative over 19 per cent. The MPS had a target of 16.1 per cent.

The World Bank economist, however, said the central bank should focus reality while they prepare the MPS as such differences will erode importance of such policy-framing exercise.

Dr Hussain said the impact of the low broad money growth is not reflected in the economy as the banking system had huge money lying 'idle'. In theory, the slow growth in the broad money supply could have caused cash crisis in the economy.

Editor : A.H.M Moazzem Hossain
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