RCL Monetary Policy Statement (MPS) Analysis July to December FY’2023
RCL Monetary Policy Statement (MPS) Analysis July to December FY’2023
Key Takeaways:
- 7.50% Real GDP growth target for H1FY24 as against existing 6.50% for H2FY23
- 6.00% Inflation target as against existing 7.50% for H1FY23.
- The repo rate 6.50% from 6.00% and reverse repo rate 4.50% from 4.25%
- Public sector credit is projected to grow by 30.00%
- Lending rate cap is removed and re-fixed as 6 months moving average of T-bill rate plus 3% margin for banks and 5% margin for NBFIs; However, for consumer and SME segment, an additional 1% interest can be charged
- Private Sector Credit Growth is set at 11.00%
- The reserve money is set to grow by 6.00%
The MPS reflects a contractionary monetary policy to combat inflationary pressure. This tight-money will mop up billions of funds in amount which will distress money supply. To balance the adequate money supply, BB to pump Tk. 70 thousand crore narrow-money in the banking system. These measures objective is to tame inflation to 6% and to achieve the real GDP target of 7.5%
Broad money (M2) is projected to increase by 10.00% in Dec 2024 from 12.1% in June 2023, based on the BB’s fresh money injections. This de-leveraging is expected to yield solving liquidity shortfall with considering the risk of hyperinflation, induced by banking sector loan scams, inflationary pressures and weak governance
Exchange rate edged up by 15.64% YOY to BDT 108.07 at the end of June 2023, from BDT 93.45 at the end of June 2022. This unforeseen scenario dictated managing the BOP and stretched the trade-deficit ultimately
The newly imposed market driven lending rate policy is likely to provide flexibility to banks ALM and interestingly will deter spending in the private sector followed by sluggish in economic activities and higher cost of doing business. Which will ultimately put pressure on the good borrowers operating in a competitive market. However, there will be a marginal hike of deposit rate to manage the funding efficiency of the banks & FIs
Enhancing the capital market development BB allowed the banks to maintain a general provision of 1.0% instead of 2.0% on classified amounts for loans to brokerage houses, merchant banks and stock dealers. This measure will help the capital market intermediaries to manage their finances and operations
Bangladesh’s economy has been facing many challenges both from the global and domestic front since 2020, followed by the Covid-19, Russia-Ukraine war, rising inflation & exchange rate volatility. Despite all these challenges, the economy of Bangladesh performs reasonably well due to its’ inherent capacity, large consumer base, supportive monetary and fiscal policies. The revival of accelerated economic growth depends on: the length and intensity of Russia-Ukraine war, interest rates pivot by Fed (USA), recovery of European regional economy, the geopolitical stability and re-emergence of the Covid-19 situation. However, Bangladesh economy has enough resilience to maintain its current status in any adverse situation.