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Cautionary MPS likely to stabilize Forex Reserve and contain Inflation: DCCI President

In response to the Monetary Policy announced by Bangladesh Bank for the second half of the fiscal year 2023-24 (January-June 2024), President of Dhaka Chamber of Commerce & Industry (DCCI) expressed optimism for stabilization of the macroeconomic condition through its implementation.

DCCI hailed BB’s strategy of highlighting the need for ensuring sufficient liquidity to nurture growth sectors while trying to rein in inflation. In this context, while increasing the public sector borrowing is necessary, care must be taken to avoid crowding out the private sector from domestic liquidity. The public sector credit growth target has been set at 27.8% for January-June of FY24, which was realized at 18% against the target of 37.9% in July-December of FY24. On the other hand, the private sector credit growth has been set by the Government at 10% for January-June of FY24, which was realized 10.2% against the target of 10.9% in July-December FY24. DCCI urges the central bank to explore more options for increasing liquidity for the domestic banking system and private sector credit growth over the next six months. In this regard, the Dhaka Chamber President seeks additional measures to increase credit flow to the private sector by an appropriate financial borrowing strategy. Focus on enhancing availability of Trade Credit, use of contingents, factoring etc. may be considered as alternatives to reduce foreign exchange stress as well as increase liquidity. He hailed Bangladesh Bank for extending support to CMSMEs through pre-financing and re-financing schemes, which should contribute towards nurturing growth sectors.

The increase in repo rate by 25 basis points to 8% is likely to impact money supply, and can impact banking liquidity available for private credit. President of Dhaka Chamber believes that the policy rate may help control inflation to some extent through reducing money supply. He also stressed the need for appropriate supporting Fiscal Policy to be implemented, which can have an equally, if not more prominent, role in reducing inflation.

Regarding the exchange rate stability, President of Dhaka Chamber expressed his hopes that a return to market mechanism and a crawling peg system will help the balance of payment challenges. Export Retention Quota (ERQ) percentage have been revised to 7.5%, 30% and 35%, down from the previous 15%, 60% and 70% to enhance foreign currency liquidity in the foreign exchange market. Additionally, Bangladesh Bank has extended the borrowing facility from Offshore Banking Operations (OBOs) allowing DBUs to receive fund up to 40% of their regulatory capital for settling permissible payment obligations. President of Dhaka Chamber suggested to allow Foreign Exchange market to operate properly with limited interventions within well-structured parameters.

He also hopes that the declared MPS will contribute to macroeconomic stability. We hope the continued focus on controlling inflation and stabilizing the exchange rate in the current MPS will bear fruit.

Published on: 2024-01-17