Sie sind auf Seite 1von 5



Financial Market Trends and Monetary Policy Actions


Overview of FY11 developments in money and credit
1.1

Growth Outcome: While output growth in Advanced Economies and Emerging including China and
India are projected to be lower, the growth for Bangladesh economy is expected to be much higher in
2011 than that of 2010, supported by the strong domestic demand and adequate liquidity in the economy.
The real GDP of Bangladesh is projected to grow by 7 percent in FY12. According to the estimates of
Bangladesh Bureau of Statistics (BBS), the real GDP growth for FY11 is 6.66 percent which is higher
than 6.07 percent growth of FY10 and average growth of 5.88 percent of this decade. Industry grew by
8.16 percent in FY11 (6.49 percent in FY10) supported by the strong growth in exports and imports.
Service sector output growth also increased by 6.63 percent in FY11 (from 6.47 percent in FY10), while
Agriculture sector output growth decreased slightly from 5.24 percent in FY10 to 4.96 percent in FY11.

1.2

Inflation Outcome: The headline (12-month average) CPI Inflation continued edging up in FY11 since
September 2010 (Chart 1), rising to 8.80 percent by June 2011, a level well in excess of the 8.00 percent
projection of the revised national budget for FY11. The food component of CPI inflation has remained at
double digit levels since December 2010 (Chart 2); because of rising price trends in global markets (Chart
3) and rising input costs in domestic production. The non-food (core) CPI inflation remained low and
fairly stable in FY11, actually declining slightly from 5.45 percent at the beginning of FY11 to 4.15
percent at the end. This trend of core CPI inflation in FY11 reflects the impact of monetary policy steps
taken (50 basis point CRR & SLR increase in December 2010, 225 basis points hike in repo, reverse repo
interest rates in 4 steps in FY11). Food CPI inflation was little impacted by monetary policy steps
however, and the government needed to ease hardship of lower income population with open market food
grain sales from public stocks at below market prices.
Chart 1.1: Trends of headline annual average CPI inflation
Base: 1995-96=100)
15.00
10.00
5.00
2009M1
2009M2
2009M3
2009M4
2009M5
2009M6
2009M7
2009M8
2009M9
2009M10
2009M11
2009M12
2010M1
2010M2
2010M3
2010M4
2010M5
2010M6
2010M7
2010M8
2010M9
2010M10
2010M11
2010M12
2011M1
2011M2
2011M3
2011M4
2011M5
2011M6

0.00

12Monthpointtopoint

Source: Economic Trends, BB


7


12MonthAverage



Chart 1.2: Trends of CPI inflation (General, Food, Non-Food)
12.00
10.00
8.00
6.00
4.00
2.00
0.00

12MonthAverageGeneral

12MonthAverageFood

12MonthAverageNonfood

Source: Economic Trends, BB


Chart 1.3: Commodity Price Indices
(January 2003 = 100; based on prices in U.S. dollars)
500
400
300
200
100

Energy

Food

2012M12

2011M12

2011M5

2011M1

2010M9

2010M5

2010M1

2009M9

2009M5

2009M1

2008M9

2008M5

2008M1

2007M9

2007M5

2007M1

2006M9

2006M5

2006M1

2005M9

2005M5

2005M1

AgriculturalRawMaterials

Source: World Economic Outlook, International Monetary Fund, IMF, September, 2011.

1.3

Monetary and credit growth outcome: Growth in reserve money, broad money and domestic credit
remained high during FY11, overshooting the targeted ceilings by wide margins (Table 1.1). The high
monetary expansion was largely domestic demand driven; net foreign assets of the banking system grew
by a mere 5.2 percent while net domestic assets grew by 25.0 percent. Decline in governments foreign
borrowing and non-bank domestic (NSD) borrowing caused public sector domestic borrowing by to rise
34.9 percent; while sharp pick up in investment and output activities in the economy shedding the global
slowdown related lassitude caused a high 25.8 percent growth in credit to private sector. Market liquidity
both in Taka and Foreign exchange tightened sharply, requiring substantial repo fund injection and USD
8



sales/overdrafts to banks from
m BB to avoid market freeze up. BB monitoring on
o money markets, on
deposit-advance ratios and lennding practices of banks intensified considerably
y; these together with
monetary policy steps of CRR increase and policy interest rate (repo, reverse repo
o) hike started slowing
monetary growth down from Q44 FY11.

Particulars
1.NetForeignAssets
2.NetDomesticAssets
Domesticcredit
CredittothePublicsectors(incl.Govt.)
Credittotheprivatesector
3.BroadMoney
4.ReserveMoney

1.4

Table1.1:MonetaryAggregates(YoYgrowthinpeercent)
FY10
Sep10
Dec10
Mar.11 June11 June11
(Prog.)
(Actual)
5.2
41.3
27.3
14.2
7.8
1.55
18.8
20.2
23.4
27.2
20.00
25.0
17.6
19.8
24.4
29.0
18.88
27.4
5.2
5.0
10.6
28.3
29.22
34.9
24.2
26.7
27.6
29.1
16.55
25.8
22.4
21.5
21.7
23.5
16.00
21.3
18.1
13.1
25.9
29.1
15.00
21.1

June12
(Prog.)
1.6
22.1
20.0
28.1
18.0
18.5
16.0

External Sector Outcome: Desspite moderate growth in remittances (6.3 percent), more
m
than forty percent
growth in both exports and impports were helpful to keep domestic demand firm an
nd to grow Bangladesh
economy at 6.6 percent in FY11. Though growth of imports and exports remained subdued in FY10 (5.4
and 4.2 percent respectively); bbut economic activities kept gradually gaining pace throughout FY11. The
strong 38.6 percent increase inn import LC settlement in FY11, compared with 7.50 percent in FY10
facilitated robust FY11 recoveery in output activities and external trade. The significant
s
increase in
opening of import LCs for inndustrial raw materials and some increases in con
nsumer goods, capital
machinery, petroleum & petroleeum products, machinery for misc. industry, and inteermediate goods during
FY 2010-11 as compared to FY
Y 2009-10 have been shown below.

SeectoralDistributioninL/COpnening2011

Petroleu
umand
Petro.prroducts
8%
%

IndustrialRaw
Materials
39%

Source: MPD, Bangladesh Bank

9


Intermediate
Goods
7%

Others
18%

Machineeryfor
misc.indu
ustries
8%
%
Capital
M
Machinery
7%

Con
nsumer
Go
oods
1
13%



1.5

Interest Rates and Exchange Rates: Lending interest rate caps imposed earlier in the backdrop of global
slowdown have been phasing out steps by steps since March 2011 in the changed face of high and rising
demand starting with loans other than industrial term loans and loans for export, agriculture and essential
imports (MPS, July 2011). Overnight Taka interest rates in the inter-bank market firmed up in FY11, the
weighted average call money rate rising from 3.33 percent in July 2010 to over ten percent in June 2011
due to higher credit demand and seasonal factors. Customer deposit and lending interest rates of banks
remained stable in FY11 little changed however observed after March 2011; the weighted average lending
and deposit interest rates increased from 11.17 and 6.0 percent of September, 2010 to 12.40 and 7.26
percent respectively in June 2011 following withdrawal of cap on the interest rates. The appreciation
pressure on exchange rate of Taka against USD in FY10, mainly due to sluggish imports, slower workers
remittance inflows have reversed in the beginning of FY11. Taka was in depreciation pressure from
growth slowdown in workers remittance inflows and strong rebound in imports, requiring occasional
market interventions by BB with USD sales. To restrain credit growth in controlling inflation BB, repo
and reverse repo have been raised a total of 275 basis points in five steps from August 2010 to September,
2011 along with Cash Reserve Requirements (CRR) and Statutory Liquidity Requirements (SLR) by 50
basis points in December, 2010. BB also has to inject a large amount of Taka and USD to maintain
stability in the interbank money market. BBs injected a total of Taka 80.37 billion as repo liquidity
support, USD 962 million net sales in the interbank foreign exchange market, USD 427 million short term
overdrafts to banks at the end of FY11 (MPS, July 2011). Taka depreciated by 6.4 percent between FY10
to FY11 which helped to increase inflows of remittances and export competitiveness during this period.

1.6

Fiscal Developments: As mentioned in the MPS, BB Government bank borrowing from the banking
system increased sharply following decline in external sector borrowing and also reduction in
Government borrowing through NSD instruments. The sale o NSD declined mainly due to lower profits
from holding this government borrowing instruments. The overall budgetary deficits are projected to be
3.8 and 4.4 percent of GDP for FY11 and FY12.Table-2 shows the Government Budget Financing in
FY11 and FY12.

10




Table 1.2: Budget Financing

1.7

Monetary Policy Stance for H1FY12: BBs monetary policy stance announced in MPS, July 2011 for H1
FY12 was a continuation of the earlier broadly growth supportive stance with discouragement of credit
growth for unproductive and speculative uses. Even though mature advanced economies in North
America and Europe face growth slowdown due to high level of household and public debt; Bangladesh
economy is expected not to suffer growth deceleration; domestic demand supported by workers
remittance inflows, agriculture and SME financing initiatives of the financial inclusion campaign and
export demand in newer markets in faster growing emerging economies in Asia and South America are
expected to compensate for demand weakens faced in traditional markets in North America and Europe.
BBs Monetary program for FY12 aims at maintaining tightened grip on market liquidity to hold
inflationary pressures in check; so as to keep annual average core CPI inflation at lower single digit levels
(upward revisions in administered energy prices in FY12 will cause some unavoidable rise in core CPI
inflation however); and to bring down the annual average headline CPI inflation to 7.5 percent by FY12.

11