BB’s liquidity mop-up frenzy contradicts monetary policy

Bangladesh Bank has continued to mop up liquidity from the money market through its 30-day bills although the central bank took the monetary policy for the January-June period, slightly easing money supply.

According to the latest BB data, the central bank mopped up Tk 8,784 crore through the BB bills in 36 auctions between November 21, 2012 and February 19, 2013.

‘It is a contradictory stance as the BB announced a slightly expansionary monetary policy to attain the expected GDP growth,’ a BB official told New Age on Thursday.

In support of the monetary policy, the BB on January 31 cut all repo rates by 50 basis points lowering the repurchase rate to 7.25 per cent from 7.75 per cent, reverse repo to 5.25 per cent from 5.75 per cent,
special repo to 10.25 from 10.75 per cent and liquidity support facility to 7.25 per cent from 7.25 per cent.

The BB lowered the policy rates so that commercial banks could get money from the central bank at a cheaper rate and accelerate investment to achieve higher economic growth, the BB official said.

Besides, the target of credit growth in the private sector for the six months has been set at 18.5 per cent from its earlier projection of 18 per cent.
‘But, the private sector is deprived of getting expected loans due to banks’ reluctance to disburse loans,’ the official said.
A number of banks are now holding excess liquidity in their accounts of cash reserve ratio with the BB, he said.
The BB data showed that the excess liquidity in the CRR accounts of the banks stood at Tk 1,820 crore on February 19, Tk 1,600 crore on February 18 and Tk 600 crore on February 17.

The BB official said that the central bank should take measures in this regard; otherwise the cuts in the BB policy rates would not bring any significant change in the existing stagnant situation in the private sector.
The BB should encourage the banks to invest their funds in the private sector, he said
The BB resumed the auction of the BB bills to check inflation and now inflation is indicating to a downward move, he said.
Before November 12, 2012, the last auction of the 30-day BB bill was held on November 29, 2010.
Another BB official said that the central bank had failed to achieve the targeted 18.30 per cent credit growth in the private sector at the end of 2012.

The BB data showed that the credit growth in the private sector stood at 16.61 per cent in December 2012.
The private sector will face the same problem this year if the BB fails to take proper measures, he said.
News Source:
New Age Bangladesh
Dated:- 24-Feb-2013

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