Rupee performance: Lesson for Taka

Dr. A. R. Chowdhury, Professor and Chair, Department of Economics, Marquette University writes on the recent performance of Rupee against the US$ and asks Bangladesh Bank to think for possible intervention in the foreign exchange market after taking lessons from Reserve Bank of India. I think, it's a worth reading, published in the Daily Star. 


Here is the link of the article. 

View on MPS continues...

Mr. Abdul Jabbar, Executive Vice President, Islam Bank Bangladesh Ltd provides his view on recent MPS, which can be regarded as a view from a banker, rather than an economic analyst.

Here is the piece published in the Financial Express.

In favor of MPS!

Dr. Zaidi Sattar, Chairman of Policy Research Institute writes why the central bank had to run for a drastic contractionary monetary policy in the face of upward trend in inflation and ongoing pressures on the balance of payments, a message given in Bangladesh Bank's new Monetary Policy Statement (MPS).

The whole argument is basically based on higher monetary growth that the central bank allowed before December 2010 (when the central suddenly increased CRR rate) basically to support the drastic expansion in fiscal policy took by the government. Since December 2010 (so, the policy adopted in the new MPS is not new), monetary growth has been restrained, basically in the private sector, which were mostly productive.

Here is the link of the article published in the Financial Express.  

Monetary Policy Statement (January-June 2012)

Bangladesh Bank unveils its much-expected half-yearly Monetary Policy Statement (MPS) for the period of January-June 2012. The MPS hints to pursue a restrained monetary growth path to check inflation and external sector pressures (import growth, as I understand). Some of the important focuses of MPS are:

1. Contain reserve money growth to 12.2%, broad money (M2) growth to 17.0% and private sector credit growth to 16.0%.
2. Ensure positive real interest rates.
3. Curb non-essential imports.
4. Stabilize external reserves.
5. Maintain an equilibrium exchange rate.

Here is the link for the official one.

Economy in twin troubles!

Shamsul Huq Zahid from the Financial Express writes on the two main economic problems that the country is now experiencing: (i) low inflation, and (ii) low investment, both public and private. He rightly finds the two basic origins of these two problems: (i) excessive government borrowing, basically to finance oil-based quick rental power plants and (ii) stock market crash in late 2010.

For the detailed analysis, please read this article.

World Economic Outlook Update, IMF

International Monetary Fund publishes its flagship publication, World Economic Outlook Update 2012: Global Recovery Stalls, Downside Risks Intensify. With global economic projections, WEOU still doubts on quick global recovery in the near future, basically due to the continued strains and fragilities in the developed world, especially in the Euro zone. In fact, WEOU projects that Euro area economy is now expected to go into a mild recession in 2012 as a result of the rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation.

Here is the link of the update.

EIU: Bangladesh Country Report

Economist Intelligence Unit (EIU) publishes its monthly Bangladesh Country Report (January 2012) with focusing on political and economic developments and economic forecasts.

Here is the link of the report.

Book: Food for All

A new book, Food for All: Investing in Food Security in Asia and the Pacific - Issues, Innovations and Practices, published by the Asian Development Bank (ADB) focusing on the subject issue in various countries including Bangladesh. Mr. Abdur Razzaque, Minister, Ministry of Food and Disaster Management, wrote the Bangladesh country chapter.

Here is the link of the book. 

IMF conditionalities for credit availability

The International Monetary Fund imposed 16 conditionalities to disburse its most promised $1.0 billion credit to Bangladesh. Some of the conditions are as follows:

1. Demutualisation of Dhaka and Chittagong stock exchanges by December 2012;

2. Introduction of an automated taxpayer identification number; 

3. Adoption of an automatic adjustment mechanism for retail petroleum prices to ensure full pass-through of international prices;

4. By June 2012, a new VAT law has to be placed in parliament and an implementation plan and timetable for the new law has to be approved by the Finance Minister;

5. The Banking Companies Act (amendment) has to be placed in parliament by June 2012, which will aim at giving Bangladesh Bank (BB) sole legal supervisory and regulatory authority over all commercial banks, and setting proper criteria for major shareholders, board members and executive officers of the banks;

6. The government has to to design a set of new regulations on loan classification and loan-loss provisioning, in line with international best practices, by June 2014;

7. A new organisational structure of the National Board of Revenue (NBR) to support VAT implementation has to be approved by the finance minister by September;

8. Bangladesh Bank issues another order by September to adjust the new amended banking law, establishing a limit on a commercial bank's shareholdings in the stock market to 25.0% of its total regulatory capital.

These are collected from a report on the issue published in today's Daily Star. Here is the news link.

Comments:
1. Some of the conditionalities are definitely good, especially those related to bring the financial sector under the 'rule of law'. I pray that the authority of Bangladesh Bank to control the financial sector will improve throughout this process.
2. For those who want oppose IMF contionalities, I want to give a point to debate. I don't understand that why the government has been so much behind the IMF to receive such a small package of loan when we compare this with other sources of foreign capital. Since the late 2010, we have been listening that IMF will provide this $1 billion in three fiscal years. That means, the government will receive just more than $300.0 million per fiscal year (FY) and this news link also confirms that probably the process will start since this FY12. Do you know how much foreign capital we receive from other sources? Just look at the figures of FY11: (i) Export: more than $23.0 billion; (ii) Remittances: more than $11.5 billion; (iii) net FDI: $768 million; (iv) Foreign Aid: more than $1.0 billion.

 What type of benefits this extra $300.0 million from IMF will bring to the ongoing balance of payment crisis?  

WB forecasts 6.0% GDP growth

The World Bank downgrades the GDP growth estimation to 6.0% of Bangladesh for FY12 due to the ongoing global economic crisis worldwide.

Here are the news links:
1. WB projects stable growth for Bangladesh economy.
2. GDP growth to slow down. 


For the original report of the World Bank: Global Economic Prospects

Result of lethargic central banking?

A news by the Daily Star on SME credit tells that during January-September 2011, two-thirds of the loans given to SME sector are used in trading! By definition, SME credit is meant for production.

Here is the news link.

Basic questions:
1. What's the role of the central bank and what it has been doing?
2. Do we remember the result (stock market crash) of having another period of lethargic central banking back in 2009 and 2010?

DCCI on the economy

Dhaka Chamber of Commerce and Industry (DCCI) expressed its views on the current economic condition of Bangladesh. The views expressed by DCCI were mostly negative, but unfortunately true. Obviously, the Finance Minister was not happy on DCCI President Asif Ibrahim! Who can make His Excellence happy? :-)

Here are the views of DCCI.

1. Economy: it's rough weather out there.
2. Resolve liquidity crisis, bring down inflation rate: DCCI.

Update on interest rate spread

The Daily Star publishes Bangladesh Bank's released data on on commercial bank's interest-rate spread. It is interesting to notice that interest rate spread is higher among foreign banks than local banks. What does it mean?

Anyway, here is the news link.

Aid target cut by $1.0b

The government is planning to reduce the foreign aid inflow target by about $1.0 billion due to dimmed prospect of receiving budgetary support from development partners. I let the implications (what does it really mean?)of the attempt.

Here is the news link. 

CA turned into deficit !

The Daily Star makes a report on the current account balance turning into deficit recently, provides a few explanation for that with good comments and suggestions from specialists in the area including one former BB Governor.

Here is the news link. 

FOREX reserves drops below $9 billion

Foreign exchange reserves of Bangladesh dropped to 8909.7 million on 9 January, for the first time under $9 billion within three years. According to the import payments of November 2011, the current amount of foreign reserves is not enough even for 3 months of import payments! The following table shows the trend.
 

	Foreign Exchange Reserves (in million US$)
FY09	7470.96
FY10	10749.74
FY11	10911.55
FY12
July	10381.26
August	10931.88
September	9883.59
October	10338.28
November	9285.20
December	9634.85
January 9	8909.70

Reason: Higher import payment in recent months as compared to foreign exchange earnings from export and remittances.

Here is the news link.

BB raised policy rates again!

In the face of persistently high inflation, Bangladesh Bank raised its policy rates (repo and reverse repo) by 50 basis points, the second time in four months (also, fifth times since March). Currently, the repo and reverse repo rates are 7.75% and 5.75%, respectively.

This news received significant attention in the international media.
1. Dawn: Bangladesh raises rates to fight inflation
2. Bloomberg: Bangladesh raises rates for second time in four months on prices 

BoP under stress

Professor M A Taslim writes on the current balance of payments condition of the Bangladesh economy with some mixtures of politics.

Here is the link.

News on banks' profit in 2011

The Financial Express publishes news on banks' profit in 2011. The news confirms that growth rate of banks' operating profit declines in 2011 due to plunging stocks, slashing interest rate spread and liquidity shortage in the sector.

Here are the news links:
Growth rate of banks profit declines in 2011.
Mixed trend in PCBs' profit in 2011.

Comment: Now, it's clear that banks were largely involved in stock market trading and made significant profit through participating games in the market. So, those blame general public who shouts in the street, please open up your eyes and put your finger to the right culprits, not on the innocent people. They are just shouting to get back their looted money.

World Economy in 2011

Olivier Blanchard, Economic Counsellor and Chief Economist at the International Monetary Fund writes on the performance of the world economy in 2011. Four major points he pointed out are:


First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria—self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications.


Second, incomplete or partial policy measures can make things worse.


Third, financial investors are schizophrenic about fiscal consolidation and growth.


Fourth, perception molds reality.


Here is the link of the article.

Bangladesh Economy in 2011

A report on the performance on the Bangladesh economy in 2011 has published in bdnews24. The report pointed out few important issues including:

1. The current government failed to fulfill one of the five major election agendas: reducing prices of essentials. In reality, overall inflation rose significantly in the current period;
2. Taka became cheaper in 2011;
3. Foreign exchange reserves depleted drastically
4. No significant investment has realized;
5. Agriculture production rose, which declined the necessity to import food.

Here is the link of the report.