In response to the declared Monetary Policy for the first half of the fiscal year 2023-24 (July-December 2023) by the Bangladesh Bank, President of Dhaka Chamber of Commerce and Industry (DCCI) Barrister Md Sameer Sattar said that a contractionary MPS will help to revive the financial and private sectors.
“The MPS primarily aims to curb inflation by reducing the aggregate demand in the economy, continuing supply-side interventions and a stable and favourable business environment. The repo and reverse repo have been adjusted to 6.5 percent and 4.5 percent respectively to control inflation by reducing the money supply,” he said.
However, he said, the effectiveness of these instruments of controlling inflation is yet to be seen. Because the reverse repo was raised earlier, inflation did not decline as expected.
Sameer Sattar said MPS showed that the lending rate cap of 9 percent had been lifted.
However, he said, the lending rate will be determined based on a new policy termed as “Short-Term Moving Average Rate (SMART)”.
“As a result, the interest rate on bank loans may reach double-digits, which may trigger manifold challenges for the survival of businesses in the current volatile geo-economic situation as well as provoking inflation. Lifting the cap on lending rates and introducing the SMART policy may also increase the cost of doing business for CMSMEs,” he added.
He said the public sector credit growth has been set at 43% for July-December of FY24, which was 40 percent in January-June of FY23.
“On the other hand, the private sector credit growth has been set at 10.9 percent for July-December of FY24, which was 11 percent in January-June of FY23. It is apparent that private sector credit growth has slowed down due to the current geo-economic uncertainty,” he added.
The DCCI President believed that the target set for public sector credit may limit the scope for private sector borrowing.
To reduce public sector borrowing, efficiency and good governance must be ensured by adjustment in government spending through austerity measures, rationalization of government expenses and prioritization of development projects, he added.
He also underscored the need for enhancing tax revenue to reduce public sector borrowing from the banking sector.
Regarding exchange rate stability, Barrister Sattar agreed that a unified exchange rate will stabilize the market.
However, he said, strong monitoring should be in place by the Bangladesh Bank so that it is properly maintained.
Reduction of ERQ encashment limit to 50 percent and increase of interest of EDF to 4.5 percent are necessary moves to mitigate the foreign exchange challenges, he added.
To enhance remittance inflow in the country, he said, Bangladesh Bank needs to be very stringent to discourage the informal channel of inward remittance like Hundi. (BSS)
