The central bank announced on Wednesday "cautiously accommodative" monetary policy statement (MPS) for the current fiscal year aiming to achieve higher growth while taming inflationary pressures.
"The policy stance remains as cautiously accommodative as before," said Fazle Kabir, governor of the Bangladesh Bank while announcing the policy.
"The monetary policy stance for FY 20 also take due note of Bangladesh's momentum as a fast-growing developing economy pursuing soonest possible graduation to upper middle income country status," according to the MPS.
The central bank has decided to release MPS on a yearly basis rather than in a half-yearly fashion.
Regarding announcement of one-time release MPS, the governor said the BB released MPS with aggregate monetary programme from the beginning of the fiscal year subject to such mid-course modifications in policy rates and statutory cash reserve and liquidity ratios as found necessary.
"So there remains no significance to release the second half-yearly MPS separately," the BB governor said while replying to a query.
The BB projects 8.20 per cent GDP (gross domestic product) growth for FY '20, while the average inflation at 5.50 per cent in June 2020 in line with the national budget projection.
The policy rates, including CRR (cash reserve requirement), SLR (statutory liquidity ratio), Repo, and Reverse Repo, remained unchanged for this fiscal year, according to the MPS.
The central bank, however, fixed domestic credit (DC) growth target at 15.9 per cent for FY '20 while the targets for broad money (M2) supply and reserve money (RM) have been projected at 12.5 per cent and 12 per cent respectively.
In the MPS, the central bank fixed private sector credit growth target at 13.20 per cent and 14.8 per cent respectively for the first half (H1) and the second half (H2) of the FY '20 while the public sector credit growth target has been set at 25.2 per cent and 24.3 per cent respectively.
"Credit growth projected for the public sector looks much bigger than for the private sector because the latter is much bigger (7.3 times) in absolute size," the BB governor explained.
The lower private sector target came against the backdrop of falling trend in such credit growth in recent months mainly due to the liquidity pressure on the market.
The private sector credit growth came down to 11.3 per cent in June 2019 on a year-on-year basis from 12.16 per cent a month ago, the BB's latest data showed.
This growth was 5.21 percentage points lower than the BB's target of 16.50 per cent for the H2 of FY '19.
High non-performing loan (NPL) burdens cited by MPS as a reason for downward stickiness of lending interest rates is itself an outcome of poor intermediation efficiency.
"Taking proactive recourse to bankruptcy proceedings (like in India) may prove to be the most effective option for banks in bringing down NPLs, with the fear of losing control of the bankrupt's own business to a court appointed receiver acting as potent deterrent of willful repayment default," it noted.
The central bank listed a couple of near-term domestic risk factors that may hamper attainment of the monetary programme objectives in the FY '20.
The MPS also said recent upward revision of fuel gas prices and new VAT law implementation have already affected prices in the beginning of this fiscal, and linger effect over the coming months remains to be seen.
"If the monsoon flood now engulfing wide expanses of the country prolongs or recurs, agricultural output losses can be significant," the BB warned.
It also said ongoing trade war and geopolitical tensions are uncertainties on the external front that may or may not impair attainment of the BB's monetary programme outcomes for the FY '20.
"The scopes for developing economies like Bangladesh may be created from such uncertainties in the coming months," the BB governor noted.
Meanwhile, the central bank is set to shift its regime into interest rate targeting monetary policy instead of the existing monetary aggregate based policy to expedite monetary transmission mechanism in Bangladesh.
Mr Kabir disclosed the major policy shift while unveiling the monetary policy statement (MPS) for the current fiscal year (FY) 2019-20 at a press conference held at the bank's headquarters in Dhaka on Wednesday.
The interest rate-based regime is in extensive use in middle income and advanced economies, the central bank chief added.
Under the proposed monetary policy framework, the BB will announce a new policy interest rate for maintaining desired inflation and real economic growth, according to officials.
Besides, the policy interest rate will be used for managing money supply through injection and withdrawal of liquidity from the market as required, they said.
Under the mechanism, the central bank may monitor the inter-bank call money rate in between Repo and Reserve Repo rates.
They also said the policy rate will be treated as market clearing interest rate based on demand and supply.
"The monetary transmission mechanism will be effective subject to financing product development," a senior official of the BB told the FE.
The existing interest rates on both lending and deposit will be influenced by the proposed interest-based monetary policy, he added.
He also said the central bank is now proceeding with preparatory work for adopting the policy interest rate focused monetary policy regime with technical assistance from the International Monetary Fund (IMF).
Talking to the FE, another BB senior official said: "We're expected to introduce such interest rate-based monetary policy by the second half (H2) of the FY '21."
Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), said the policy interest rate will be fixed considering the market interest rate structure.
"Bond market will have to be vibrant for the effective operation of the interest rate-based monetary policy," the senior economist noted.
He also said the interest rate-based monetary policy will be formulated taking inflation target into account.
"Ensuring price stability is one of the prime responsibilities of the central bank," he said.
Among others, BB Advisers Allah Malik Kazemi, SK Sur Chowdury, Bangladesh Financial Intelligence Unit (BFIU) Head Abu Hena Mohammad Razee Hassan and Deputy Governors of the central SM Moniruzzaman and Ahmed Jamal spoke on the occasion.