Credit to private sector has marked a significant rise of 3.40 per cent in the first quarter of the current fiscal compared to that of the same period of the previous fiscal despite of tight monetary policy.
The year-on-year private sector credit growth was 17.18 per cent in last September indicating higher credit flow compared with the growth of gross domestic product (GDP) and the extent of inflationary pressure on economy.
The central bank, however, will continue to follow its existing tight monetary policy to curb the flow of private sector credit in the near future, official sources said.
"We will follow our existing tight monetary policy to minimise the credit flow, particularly in the private sector," a BB senior official told the FE, adding that the BB may use its tools to mop up the surplus fund from the banking system.
He also said high credit growth props up imports that creates pressure on foreign exchange market and forces the local currency to depreciate.
Despite the fall in the industrial loan, the credit for export-oriented sectors like textile and pharmaceuticals and trade have already been increased during the period, sources in the banking sector said.
"The country's overall business activities will be hampered if the credit flow to the private sector is drastically squeezed," a senior official of a private commercial bank told FE.
He suggested that the authorities concerned should take cautious steps to maintain the flow of private sector credit in the interest of the national economy.
Earlier, the central bank advised the commercial banks to raise the interest rates on deposit and lending, especially to unproductive sectors, to contain inflationary pressure on economy.
Sources, however, said the private sector credit flow went up because interest rates on deposit and lending were not increased significantly until last June.
According to the central bank statistics, the weighted average lending and deposit rates of the banks were 10.93 per cent and 5.62 per cent respectively in last June from 10.74 per cent and 5.58 per cent respectively in last March.
Besides, domestic credit recorded an increase of Tk 59.48 billion or 4.03 per cent during July-September period of the current fiscal against the increase of Tk 16.02 billion or 1.28 per cent during the same period of the previous fiscal.
The rise in domestic credit during the period was mainly due to the increase in the private sector credit by Tk 37.61 billion or 3.40 per cent.
However, the government borrowing from the banking sector increased by Tk 5.05 billion or 1.97 per cent and credit to other public sector entities shot up by Tk 16.81 billion or 15.03 per cent.
Credit to the public sector also increased by Tk 21.87 billion or 5.94 per cent during the period, sources in the central bank said.