New monetary policy lacks real time drive to stimulate recovery

The annual monetary policy announced on Thursday with expansionary and accommodative policy outreach essentially targeting recovery of the Covid-19 hit economy. The Bangladesh Bank announced the policy for FY 22 with private sector credit growth at 14.8 per cent as against 32.6 per cent government borrowing. This means we have already replaced the private sector led growth to government led economic growth. We agree with financial experts who hold the view that the policy statement has rightly analysed the existing economic situation but we find it lacks realistic measures to address the private investment challenges.
Evidently the economy is now sitting over Tk 2.0 trillion liquidity, but the policy guidelines lack an effective mop-up plan. In our view the private sector investment targets can’t do much in the ongoing situation. With a broken supply chain the economy can’t be expected to function smoothly to generate new investment to spurt recovery. The important point is that the present situation is not capable of translating the huge liquidity into effective demand for credit.
We fear high inflation may lead to a spike in commodity prices and asset bubble-up such as it is taking place in the stock market. The past tragedy may repeat again from diversion of part of the Covid-19 financial aid package to the stock market by borrowers looking for quick gain. The new monetary policy must have effective policy measures to block such diversion as well as capital flight.
We share experts’ opinion that the expansionary monetary policy with its conventional nature amid the pandemic may fail to achieve results. The government borrowing is several times higher than private sector borrowing to meet its huge expenditure. The real private sector borrowing is much lower at single digit interest which keeps the economy limping. The new monetary policy lacks the real time innovative measures to pull private sector borrowing up to achieve its objectives.
In our view more private credit flow must be ensured particularly to the small and microeconomic sector, stronger vigilance must be in place to check diversion of bank borrowing to stock market plus unbanked traders and vendors must be integrated to the formal economy. Stimulating recovery needs such inclusive measures that the new monetary policy should attempt to achieve.