A higher credit growth target for the private sector will likely
divert funds to 'the wrong hands' as the political situation is not
appropriate to attract investment in the productive sector, analysts
said yesterday.
They cited power and gas crisis, higher
interest rate and political unrest as the main setbacks to investments.
So, many businesses are waiting for the next general election to pass,
before going for expansion, they said.
“Bangladesh Bank has
signalled easing private sector credit. It is a good sign. But it is not
the right time,” said Salehuddin Ahmed, former governor of the central
bank.
Ahmed spoke at a focus group discussion on 'Monetary Policy
in Bangladesh' organised by Financial Excellence Ltd (FinExcel) at its
office in Dhaka.
The country may witness political unrest in the
coming days with the national election approaching, he said. “It may
prevent entrepreneurs from making new investments this year.”
In
the new monetary policy, Bangladesh Bank targets a private sector growth
envelope of 18.5 percent in June 2013 compared with the original
programme of 18 percent.
“It is an expansionary credit growth policy,” said ABM Mirza Azizul Islam, a former caretaker government adviser.
But the higher interest rate may discourage the private sector to borrow from the banking system, Islam said.
The
amount of banks' demand deposit shrank 6 percent in recent times, while
the time deposits have increased, which indicates banks are offering
higher rates to attract deposits, he said.
The lending rate will likely increase when the new banks start operations, Islam said.
Although
BB has raised the credit growth target for the private sector to
attract more investment in the productive sector, it may not attract the
real investors because of infrastructure setbacks, said Amir Khasru
Mahmud Chowdhury, former commerce minister and BNP chairperson's
adviser.
There is no space for further investment as the people'
purchasing power has eroded, lending rate reached 16-18 percent and
electricity prices have gone up, Chowdhury said.
“Businesses are
not going for expansion, even in the vibrant readymade sector, due to a
higher lending rate,” said Ehsansul Haque, managing director of
Mercantile Bank.
The recent Hall Mark scandal has created tremendous pressure on the banking sector, he said.
“Now
bills of every Tk 5 lakh come to the chief executive of the bank for
approval,” Haque said, adding it created a huge impact on businesses.
The central bank reduced its policy interest rates, both for repo and reverse repo, by 50 basis points, first time since 2009.
The
BB has revised its monetary programme with a broad money growth target
of 17.7 percent in June 2013 compared to the MPS target of 16.5 percent
in the first half of fiscal 2013.
The central bank has signalled
easing private sector credit as the overall inflation come down
significantly in the recent time, said Hassan Zaman, chief economist of
BB.
“Declining inflation has created the space for the repo rate
reduction which should have an impact on lending rates and stimulate
more growth-enhancing investments,” he said.
The economy will expand more than 6 percent in the fiscal year, he said
Consumer-price growth was 7.69 percent in December 2012, moderating from almost 12 percent in September 2011.
Mamun Rashid, vice chairman of FinExcel, moderated the discussion.
Source: The Daily Star
