Bangladesh should maintain an accommodative monetary policy to spur the economy, central bank governor Atiur Rahman told Reuters ahead of Tuesday's announcement of the bank's official policy bias. The monetary policy stance between January and June, which will be announced on Tuesday, is designed to support attainment of the highest sustainable output growth without triggering escalation of inflation, he said.
Bangladesh aims to achieve economic growth of at least 6 percent in the 2009/10 fiscal year through June, compared with 5.9 percent in the previous fiscal year with an average inflation rate of around 7 percent, which is projected to come down to 6.5 percent this fiscal year.
However, economists have said inflation, which is rising after hitting a 90-month low of 2.3 percent in June 2009, might hold back the economic growth.
Annual inflation jumped to 6.71 percent in October 2009 from 4.60 percent the previous month mostly because of a steep rise in food costs, government data showed. The Asian Development Bank said in a report last month that rising rice and other commodity prices in the international market may create pressure on domestic prices in Bangladesh while excess liquidity in the banking system may also be contributing to inflationary pressure.
The central bank governor said excess liquidity had reduced as the authorities pursued banks to offer more credit to small and medium industry entrepreneurs to diversify focus of the economy.
He said the SMEs were now a progressive growth sector that the government had pledged to encourage in every possible way. The central bank will also push for credit growth to productive sectors like farming to stimulate and expand domestic supply responses, Atiur said.
The central bank has made disbursement of agricultural credit mandatory for all banks and has set a target to offer 115 billion taka ($1.7 billion) credit to farmers this fiscal year, 23 percent higher than the previous year, to raise production and help the economy.
Agriculture generates a fifth of the country's economic activity and employs 60 percent of its workforce. Export earnings of $17.6 billion and around $11 billion in remittances have been targeted in the current fiscal year to boost foreign inflows into the $80 billion economy, he said. Exports and remittances from Bangladeshis working overseas are key sources of foreign exchange for the impoverished south Asian country of 150 million people. Foreign exchange reserves soared to a record $10.34 billion at the end of December.