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Saturday, 12 January 2008

BB rejects WB growth forecast

Staff Correspondent

Bangladesh Bank governor Salehuddin Ahmed rejected the World Bank's projection of economic growth and said the country's economy would grow at a rate between 6 and 6.2 per cent in the current fiscal year.

'Neither the World Bank nor the IMF runs the country; they will not be engaged in our affairs,' said the governor Thursday, a day after the World Bank lowered Bangladesh's economic growth estimate to 5.5 per cent for the 2007-08 fiscal year due to political tensions, severe flooding and cyclone Sidr.

Rising inflation, potential threat to exports, increase in the food and energy prices and pressure on external balance would have an adverse impact on the economy, according to WB's Global Economic Prospects 2008 released on Wednesday.

In the last fiscal, the growth rate was 6.51 per cent and average inflation 7.2 per cent.

'I saw the World Bank projection; they talk with some people in Dhaka and make their own projection, but we deal with the reality,' Salehuddin said as the central bank unveiled its monetary policy for the January-June period.

He hoped inflation, which hit record high of 11.21 per cent in November on point-to-point, would come down to a range of 8 to 8.2 per cent on an average.

In the first half of the fiscal year, the country's economy was confronted with twin floods in the August-September period and a severe cyclone in November, apart from soaring food prices often attributed to the global commodity market volatility.

The central bank's half-yearly monetary policy, unveiled Thursday, has planned steps to help the economy overcome the shocks of the first half and see a higher growth with more employment and income generation in the later half of the fiscal year.

'In the second half of the FY08, overall economic scenario will improve,' the governor hoped.

The stance of the monetary policy will be to increase credit flows to all productive sectors and bring down the gap between lending and deposit rates, he said.

Increased credit to different sectors including agriculture, rural, low cost housing and small and medium enterprises would reinvigorate the economy, he said.

The statement pointed out that natural calamities, reform measures and administrative drives against corruption and tax evasion led to sluggish economic activities and resulted in excess liquidity in banks, which now stands at about Tk 14,000 crore.

'We will look into the issue of excess liquidity of banks and devise how it can be used efficiently and quickly.'

If the lending rate is reduced, it will lessen the burden on the business community, he observed.

Banks should not reduce deposit rates as high inflation would eat into real returns, he opined.

'Banks rather should increase their efficiency level to give better services,' he said.

Encouraging competitiveness would bring down the costs of banking products and increase service standards, he viewed.

Harmony between fiscal and monetary targets is imperative to make the policies of central bank successful in the time of unexpected developments and unfolding situations, he said. The monetary policy statement attributed the rise in inflation in the first half of the fiscal year to supply constraints.

'Supply side factors are likely to play the major role in moderating the inflationary pressure,' the statement said.

The central bank would support domestic output growth especially in agriculture and SME, and at the same time keep the lending under control.

The central bank would see whether robust remittance inflow had any contribution to the inflationary pressure, the governor said. If remittance is directly used in consumption it would increase inflation, he said, adding, 'The central bank will try to channel the funds into productive sectors.'

The central bank felt that present subsidy policy, business confidence to accelerate private sector investments and production activities and reasonable socio-political stability would be critical factors for the effective monetary management. The policy statement said the central bank made its policies flexible to meet the short-term exigencies especially after the floods and cyclone.

Deputy governors Nazrul Huda and Ziaul Hasan Siddiqui, and economic adviser Habibullah Bahar were also present at the launching programme of the monetary policy.

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