BB criticised for caving in under govt, businesses’ pressure

BANKS’ CASH RESERVE RATIO CUT

HM Murtaza 

Two former top officials of the Bangladesh Bank and an economist on Sunday blasted the current central bank leadership who ‘virtually throwing away the autonomy caved in under the pressure of the government and banks owners’ to reduce cash reserve ratio.

They termed ‘unprecedented’ the decision taken in a Sunday meeting, attended by the finance minister, bank owners, bankers and central bank officials, to cut CRR by 1 percentage point.

Former finance advisor to a caretaker government Mirza Azizul Islam, former BB governor Salehuddin Ahmed and former central bank deputy governor Ibrahim Khaled told New Age that the decision was inappropriate and was taken in an improper way in presence of the finance minister and the bankers. The decision should have been taken exclusively by the central bank and there was no scope for intervention by the finance ministry or following demands of bank owners, they said.

Finance minister AMA Muhith held the meeting with Bangladesh Bank governor Fazle Kabir, Awami League president’s privatisation affairs adviser Salman F Rahman and representatives of Bangladesh Association of Banks, including its chairman Md Nazrul Islam Mazumder, and Bankers association at Sonargaon hotel in Dhaka.

After the meeting, Muhith announced that the BB would cut banks’ cash reserve ratio to 5.5 per cent from 6.5 per cent to increase money supply to the financial market. Governor Fazle Kabir did not make any comment.

Terming the decision ‘unjustified’, Mirza Azizul Islam said that there was no liquidity crisis in the banking sector rather it had a higher amount of liquidity than the required minimum liquidity.

It was unnecessary to reduce the CRR and the central bank should instead focus on where the credits were following out from the banks, he said. He pointed that there should not be any discussion with the finance minister about the issue.

Former BB governor Salehuddin Ahmed told New Age, ‘I am doubtful whether the decision was taken based on adequate analysis.’ Besides, he said, ‘the decision to reduce cash reserve ratio is contradictory with BB’s monetary policy that is aimed at reducing credit growth’.

Commenting on the manner in which the meeting reached the conclusion about the demands of the BAB to get rid of existing liquidity crisis in the banking system, Salehuddin said, ‘Usually, the finance ministry or the minister does not get involved in taking such a policy decision, rather the central bank takes the decision itself exclusively.’

‘Overseeing CRR, statutory liquidity ration and monetary supply issue are under the jurisdiction of the central bank. It could not be a matter of this type of meeting,’ he said. ‘Taking decision in such a manner could hamper the autonomy of the central bank to some extent and it’s not a matter to be satisfied with,’ the former BB governor said.

‘I could not remember any decision of the central bank that was taken in such a manner,’ Salehuddin said adding that during his tenure at the central bank, the CRR was changed once but the decision was taken solely by the central bank.

When asked former Bangladesh Bank deputy governor Ibrahim Khaled said, ‘If the decision was taken in that sort of meeting in the presence of the minister, then it became an obligatory issue for the Bangladesh Bank.’

‘Such decisions should be taken inside the Bangladesh Bank, there should not be any presence of any minister and it was not a good practice either,’ Ibrahim Khaled said.

About the decision to reduce banks’ cash reserve ratio, the former BB deputy governor said, ‘Such money are kept to mitigate risk, and as the banking sector are facing a higher risk right now that’s why it was not a good decision.’

‘I have never observed that a policy decision of the central bank was taken in such a manner. The policy decisions are usually taken in its office as there are chances to get influenced if decisions were taken in any meeting comprising of ministers,’ he added.

‘If the minister gives any positive gesture to any issue then it becomes difficult for the central bank governor to ignore,’ he argued. It was not a good decision to hold such a meeting and any such meeting proposal should not be placed in the future, Ibrahim Khaled observed.

The governor should have avoided the meeting stating that they would take the decision in the central bank office, not in any other place, he said.

‘The person who would not be able to do so has no rights to hold the post,’ Khaled said. 

• Courtesy: New Age/ Apr 02, 2018