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.