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Higher credit target set for public sector

Private investment proposals may get help from forex reserve: BB chief

Staff Correspondent
Despite a clear sign of sluggishness in private sector investment. Bangladesh Bank (BB) in its new monetary policy for the current fiscal year set a higher credit target for the government sector compared to the private sector.
The central bank yesterday announced its Monetary Policy Statement (MPS) for the period of July-December 2009, increasing its target for government sector credit by about 3.4 percentage point for June next year compared to this year's June target.
The statement however adds that during the period private sector credit
will also increase, although by a mere 1.7 percentage point.
Although the central bank governor had spoken in favour of a bold expansionary policy on many earlier occasions, he yesterday announced a rather cautious policy, telling reporters that the policy is 'proactive'.
According to BB statistics, during July-May of FY '09, letters of credit (L/C) opening for capital machinery fell by 30.39 percent, and for industrial raw material import it fell by 4 4 percent.
Industrial term loan disbursement also dropped by 9.6 percent in July-March ofFY'09.
The private sector never complained
about not getting money, BB Governor Dr Atiur Bahman told reporters yesterday after announcing the MPS at (lie central bank. There is enough money in the banking system, and there will be no problem of money for the private sector, he added
The private sector credit growth target has been fixed at 16.7 percent for June 2010, which was estimated at 15 percent for June this year. In December OB the growth was 21.77 percent, which dropped to 16.23 percent in May this year.
The government sector credit growth target has been fixed at 29.6 percent for June 2010 which was estimated at 26.2
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percent for the corresponding period this year. In May this year the figure rose to 23.88 percent from 16.66 percent of December 08.
The MPS says there is no reason to worry about possible crowding out of private sector borrowing due to the increase in government sector credit, as there is a 'large liquidity overhang’ in the market.
The central bank policy statement also says, "In situations like the present slack in private sector investment activities, expanded public sector borrowing for development activities is actually helpful, putting the liquidity overhang to good use in pacing up growth momentum."
Atiur Rahman also said, "If good investment proposals are available, money will not be a problem. If necessary, assistance will be provided from the foreign currency reserve."
Consultant to the BB governor, Allah Malik Kazemi, said the foreign currency reserve target for June next year has been fixed at 500 million dollars less than this year's June target, so the central bank may provide such support to private investors.
BB Deputy Governor Nazrul Huda said the central bank has always been trying to ensure access to credit for thrust sectors including small and medium enterprises. The central bank always pursues low interest rates for those sectors, he added.
Another central bank deputy governor, Ziaul Hasan Siddiqui, said this fiscal year the target for GDP growth has been set at 6 percent, with inflation projected at 6.5 percent by June 2010. The private sector credit growth target of 16.7 percent is reasonable compared to the GDP growth and inflation, he said.
The central bank will continually monitor domestic and external developments, and stand ready to respond appropriately to challenges, for macrofinancial stability, growth, and poverty reduction aspirations of the government and the population at large, says the MPS.