The significant depreciation of local currency against the USD in the recent months has positively impacted private sector credit growth.
A central bank report titled “Impact of Exchange Rate and Global Commodity Price Inflation on Private Sector Credit in Bangladesh” on Wednesday added that the private sector credit has been growing exponentially in recent times, hitting 13.9 per cent at the end of this October.
This recent surge in import payments due to USD appreciation had led to an increase in bank credit, read that report, adding that it may create a potential liquidity mismatch.
The private credit growth was the highest – 14.07 per cent – in August this year. However, October’s figure is still higher than the target for December.
In its monetary policy statement for FY 2022-23, the central bank had set the private sector credit growth target at 13.60 per cent till December, and 14.10 per cent till next June of this fiscal year.
The inter-bank exchange rate of USD rose by 24.41 per cent during the last year, reaching Tk 107 per USD on December 19. The exchange rate was at Tk 86 per USD on January 31.
According to the central bank report, the adverse commodity price shocks and exchange rate volatility can create challenges to the economy through credit channels, which ultimately impact the bank’s balance sheet.
Large commodity price shocks can also affect bank balance sheets by weighing on a country’s reserves and increasing the risk of currency mismatches, it added.
Another challenge is that a sharp increase in global commodity prices can impact commodity importers’ budgetary balance, which may drive the government to adjust its budget to contain any such budgetary imbalance.
In view of tackling external factors driven by imported inflation, there are not many policy options available other than making appropriate supply side interventions, while managing the exchange rate adversities requires market oriented flexibility.
With continued growth-supportive policy measures, Bangladesh’s economy successfully recovered from the COVID-19 impact as real GDP grew by 6.94 and 7.25 percent in FY21 and FY22, respectively, reaching the pre-pandemic growth rates, shown BB report.
However, when the economy started to gain further growth momentum, speeding up its growth recovery, the Russia-Ukraine war came in front as a blow to Bangladesh economy like most other economies.
Bangladesh, in fact, started to feel the heat of the war from its external economic sectors, mostly through global commodity price channels, the BB report read.