The monetary policy targets, set for the current fiscal year (FY), 2021-22, are hardly achievable during the time of Covid-19 pandemic, according to economists and businesses.
The Bangladesh Bank (BB) announced the monetary policy for FY 22 on Thursday, keeping the private sector credit growth target at 14.8 per cent. It, however, kept policy rates unchanged.
The experts also said the monetary policy statement rightly analysed or assessed the existing economic situation, including higher liquidity in the economy. But, in many cases, it did not mention how to address those challenges.
Dr. Ahsan H. Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), a privately-owned think-tank, told the FE: "The economy now has liquidity amounting to over Tk 2.0 trillion, but there is no mop-up plan."
Besides, the private sector credit growth target is not achievable during the present Covid situation. Such target will best suit Covid-free normal economy.
The assessment on the economy is quite okay, but there is no alignment with the assessment in the policy statement, he added. Dr. Zahid Hussain, an independent economist, told the FE that the monetary policy cannot do much during the Covid situation.
There is a supply disruption in the economy now due to the lockdown. "Can the monetary policy ensure smooth supply chain?"
The economy has adequate liquidity, but it cannot be translated into credit due to the Covid pandemic.
Dr. Hussain noted that there are two major risks - high inflationary pressure and asset bubbles.
The supply chain disruption may escalate the prices of essentials, leading to the spike of headline inflation. The prices of foods in the international market are also on the rise. "To my mind the rate of inflation may spike."
Dr. Hussain also said an asset bubble might occur, as the financial institutions would not keep their funds idle for long time. "The funds may be invested in stocks and real estates, which may increase their prices at a rapid pace without underlying fundamentals," he noted.
President of Dhaka Chamber of Commerce and Industry (DCCI) Rizwan Rahman said the monetary policy is expansionary and accommodative, but conventional.
"The announced policy is more or less expansionary and accommodative, but a conventional one - considering the current Covid-led economic situation."
The public sector credit growth was targeted at 32.6 per cent, and the private sector credit growth at 14.8 per cent at the end of FY 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 do not improve or recover, the target cannot be realised."
Mr. Rahman noted that the government allocated a budget of around Tk 1.28 trillion for social safety net, which may force it to borrow more to manage core economic operations and other expenses that might affect private sector credit flow.
A weak and shattered business environment and supply chain system around the world affected new investment, weakening private sector credit flow as a whole.
"It is worth pointing that almost 90 per cent CMSMEs are operating at reduced capacity, having limited intention to invest in most instances."
The DCCI president also mentioned that no substantial directive or course of action was seen to revive confidence in the capital market.
The monetary policy is as usual, and there is no innovative approach or course of action - especially to motivate the private sector, he concluded.
Abul Kasem Khan, Chairman at the Building Initiatives Leading Development (BUILD), said there are many good initiatives in the policy, including credit guarantee schemes and a number of funds.
He stressed the need for inclusion of unbanked traders and vendors in the formal economy for optimal unitisation of the funds and packages.
The commercial banks operate under the BB guidelines. So, they cannot do much without policy support for funding the unbanked traders and vendors.
He noted that thousands of traders are severely impacted by the Covid pandemic, but they do not have access to the banks.
"The economy has adequate liquidity. But we cannot lend to the large number of traders, as they remain outside the formal economy. The policy should address it."
"We can stimulate the domestic economy through targeting the traders and vendors as well as funding them," he added.