Published: Tuesday, March 12, 2013

A critique of the Monetary Policy Statement

As a part of its regular functions, Bangladesh Bank (BB) announced its half-yearly Monetary Policy Statement (MPS) for the period January-June 2013 on January 31, which has been appreciated by many as a “balanced” and “proactive” one. It is the output of a series of consultations with the relevant stakeholders, experts and policy makers in the economic and financial fields.
In preparing the statement, in-depth exercises were carried out at the central bank keeping in view the latest outcome in the domestic as well as in the external economic scenarios. Though it is not a detailed review of the present MPS, this short note makes an attempt to highlight some inconsistencies here and there which may help the researchers at the central bank to be cautious and careful in future. Some of the instances are as follows:
(i) Lines 6 & 7 on page 2 of the current MPS say “The third development centers around the healthy growth in private sector credit, which grew by 17.4% in November 2012, while public sector credit growth was only 5%.” But if we look at the BB data (Major Economic Indicators, Monthly Update, Vol.1/2013, January 2013, page 3) we see that the growth rate of 17.4% in private sector credit is for the year ending November 2012(and not in November 2012 only) compared to that in the same period of the previous year. Again, it has been seen from the BB data that public sector credit growth during the same period was 6.86%, say 7% and not 5% as mentioned in the lines under consideration.
(ii) In the last paragraph on page 2, it has been stated “—–and a new private sector growth envelope of 18.5% in June 2013 compared with the original programme of 18.0%.”  This is a comparison from programme to programme only, which serves little analytical purpose. It is better to compare the programme for the year ending June 2013 (18.5%) with the actual outcome in the previous year(19.7%).If we do so, then it will be evident that the credit growth in the private sector in FY13 has been set at a relatively lower rate than that in the previous three years.
(iii) It has been said on page 3 under the Global context “the United States is showing some signs of recovery but overall the growth prospect for 2013 in advanced economies remains bleak while growth has slowed in developing countries.” But, if we look at Table 1, we see that growth rate in high income countries and in other advanced economies will increase from 1.3% and 1.5% in 2012 to 1.5% and 2.4% respectively in 2013.The situation in the USA remains more or less flat during these periods. Moreover, the world growth rate is also projected to increase from 3.3% in 2012 to 3.6% in 2013. If this is the situation, then the word “bleak” may mislead the general readers about the developments in the world economy.
(iv) On page 4 under Inflation headline, line 2 reads as “— from a peak of 10.96% in February to 8.7% in December.” But the line did not mention the year, which I think is important. So the line should be read as “—-from a peak of 10.96% in February 2011 to 8.7% in December 2012.”
(v) The second paragraph under the heading of Output growth on page 5 says “In this context BB’s forecast for GDP growth for Bangladesh in FY12- of between 6.1-6.4% remains more than respectable if it materializes.” In this line, it should be FY13 instead of FY12. (Bangladesh Bank Quarterly, Vol.X , No.1 also confirms this)
(vi) The first line of the paragraph on page 6 just below Table 2 under the heading “The overall external balance has improved” state “Export growth in FY12 remained in positive territory with 7% growth in December 2012”. But we observe from Table 2 that export growth in FY12 was 5.9% and not 7%. Further, export growth should be shown for the period July-December 2012 and not only for December 2012. So this line should be better read as “Export receipts in the first half of FY13 i.e. during July- December 2012 remained in the positive territory with 7% growth rate.”
(vii) Annex 1 on page 13 shows the major heads of the balance of payments statement for the current three years only. Data for another two past years could have been added to it to portray a time series data at least for five years, and the statement should contain the details of the balance of payments (and not only the major accounts as shown now in the MPS) as given in BB’s Annual Report.
General readers, stakeholders and researchers both at home and abroad respect the depth of analysis and authenticity of data provided/published by the central bank. So it is expected that Bangladesh Bank should always be careful to uphold its images in this regard.

The writer is Agrani Bank Chair Professor, BIBM.
E-mail: habibullah@bibm.org.bd