DHAKA, Jan 17, 2024 – The President of Dhaka Chamber of Commerce & Industry (DCCI) is optimistic that the upcoming monetary policy for the second half of FY24 will play a crucial role in stabilizing the macroeconomic condition through its effective implementation. The DCCI has praised the strategy outlined by the Bangladesh Bank, which emphasizes the need to maintain sufficient liquidity to support growth sectors while also addressing inflationary pressures.
In light of the monetary policy announcement, the DCCI has stressed the importance of ensuring that the private sector is not crowded out by increased public sector borrowing. While acknowledging the necessity of boosting public sector credit growth, the DCCI has urged caution to prevent any adverse impact on domestic liquidity for the private sector.
During the first half of FY24, the public sector credit growth target was set at 37.9% but was realized at 18%. Similarly, the private sector credit growth target for the same period was 10.9%, with an actual realization of 10.2%. To enhance liquidity and credit flow to the private sector, the DCCI has called upon the central bank to explore additional measures and options in the coming months.
DCCI President Ashraf Ahmed has specifically highlighted the importance of increasing credit availability to the private sector through appropriate financial borrowing strategies. The DCCI has suggested exploring alternatives such as enhancing trade credit, utilizing contingents, and factoring to reduce foreign exchange stress and increase liquidity.
Appreciating the Bangladesh Bank’s support for the development of Cottage, Micro, Small, and Medium Enterprises (CMSMEs) through pre-financing and re-financing schemes, Ashraf Ahmed believes this will contribute to nurturing growth sectors.
However, the recent 25 basis points increase in the repo rate to 8% is expected to have an impact on money supply and banking liquidity. The DCCI president believes that this move may help control inflation by reducing money supply. Emphasizing the need for appropriate supporting fiscal policies, he suggests that a proper fiscal strategy can play a prominent role in reducing inflation.
Ashraf Ahmed remains hopeful that a return to a market mechanism and the implementation of a crawling peg system will help address the challenges related to the balance of payments and stabilize the exchange rate.
To enhance foreign currency liquidity in the foreign exchange market, the revised Export Retention Quota (ERQ) percentages have been set at 7.5%, 30%, and 35%, down from the previous 15%, 60%, and 70%. The Bangladesh Bank has also extended the borrowing facility for Offshore Banking Operations (OBOs), allowing DBUs to receive funds up to 40% of their regulatory capital to settle permissible payment obligations.
The DCCI president has suggested that the foreign exchange market should operate within well-structured parameters, with limited interventions, to ensure proper functioning. He expressed hope that the newly announced monetary policy will contribute to macroeconomic stability, particularly in controlling inflation and stabilizing the exchange rate.
In summary, the Dhaka Chamber of Commerce & Industry has welcomed the monetary policy announced by the Bangladesh Bank, emphasizing the need for caution to avoid crowding out the private sector while promoting growth and containing inflation. The DCCI believes that additional measures should be explored to increase liquidity and credit flow to the private sector. By supporting appropriate fiscal policies and implementing a market mechanism for the exchange rate, the DCCI hopes to achieve macroeconomic stability in the coming months.
