The growth of private sector credit in the country has reached the lowest point over the past three years. As of October 2024, private sector credit growth dropped to 8.30 per cent marking a significant decline from previous months and the lowest recorded in 40 months, Bangladesh Bank's (BB) latest update on economic indicators shows.
The previous low occurred in May 2021, when the growth rate was just 7.55 per cent. The latest dip in private sector credit growth has been attributed to the government's economic policies and ongoing market instability.
Economists have blamed fluctuations in dollar rates in the market over the past two years, particularly under the Awami League administration, leading to an increase in exchange rates per dollar from Tk85 to Tk120.
As businesses grapple with the rising cost of imports due to fluctuating dollar rates, credit demand by businesses diminished.
Recent political changes and raised interest rates on bank loans have further contributed to the decline in private sector borrowing. Following the July-August mass uprising the country's political landscape remains uncertain, discouraging new investments.
In efforts to control inflation, the central bank has repeatedly increased policy interest rates, which has led to a rise in bank lending rates. This escalation in borrowing costs has pushed many businesses houses to reconsider or delay their investment plans, contributing to reduction in credit growth.
BB data shows total credit balance in the banking sector as of October this year stands at Tk16.56 trillion, compared to Tk15.29 trillion in October of the previous year.
This translates into an annual credit growth of 8.30 per cent although it reflects a 10.09 per cent increase from the previous year figures. In September 2023, credit growth was recorded at 9.20 per cent, indicating a decline of 90 basis points in just one month.
The central bank had previously revised its private sector credit growth target from 10 per cent to 9.80 per cent in the light of the growing inflationary concerns. Despite several adjustments to policy interest rates since the government's transition on August 5, the overall monetary policy has remained unchanged.
Credit growth rates fluctuated significantly over the past several months. In October, the rate was 8.30 per cent, down from 9.69 per cent in September and 9.75 per cent in August.
Earlier in 2023, rates were as high as 12.62 per cent in January, emblematic of a sharp decline as the central bank tightened monetary policy in response to soaring inflation.
Notably, overall inflation has risen recently, particularly food inflation which spiked to almost 14 per cent. According to Bangladesh Bureau of Statistics, the overall inflation rate for November was 11.38 per cent, an increase from 10.87 per cent in October.
Food inflation specifically recorded 13.80 per cent in November, up from 12.66 per cent in the previous month, reflecting ongoing challenges in managing inflationary pressures within the economy.
