The central bank has recommended keeping close watch on higher credit growth, yawning current account deficit and inflationary risks for the sake of macroeconomic stability.
"Strong credit growth, wider current account deficits, and inflationary risks, however, warrant continued prudent management of macro-financial stability," the central bank said in its latest Bangladesh Bank Quarterly (BBQ) for October-December 2017, released on Tuesday.
Mustafa K Mujeri, former director general of Bangladesh Institute of Development Studies (BIDS), subscribed to the BB recommendations, saying the policy-makers should also take effective measures immediately to minimise such risks.
"The stability of real sectors may be hampered if the ongoing pressures on external sector, particularly on overall balance of payments (BOP), continues," Mr Mujeri, also former chief economist of the Bangladesh Bank (BB), explained when contacted.
Bangladesh's BoP slid to a deficit of $ 978 million during the July-February period of the FY 18. It maintained a surplus of $ 2.45 billion in the same period of FY 17.
The senior economist also predicts the prevalence some sort of uncertainty in the overall economy in the coming months due to the upcoming national elections.
The central bank said the growth momentum in economic activities remained robust in the second quarter (Q2) of the current fiscal year (FY) 2017-18, aided by strong growth of private sector credit and exports, a 'surge in remittance inflows' and higher import demand for investment.
"On the supply side, the buoyancy was led by the industry sector, while the service sector seemed to have maintained its recent trend in the absence of any major weather-related and political shocks," it noted.
The agriculture sector regained its momentum as it recovered from the flood-related shocks and helped moderate food price increases, according to the BBQ.
The BB quarterly predicted that, supported by both domestic and external demand, output growth is expected to be strong in the near-term, the central bank observed.
Among the money market indicators, reserve money grew by 13.3 per cent during the period under review, largely in line with the programmed path for the first-half of FY18.
Growth in private sector credit continued its trend and reached 18.1 per cent in December 2017. The large part of credit, combinedly, went to the industry, trade, and commerce sectors.
The BBQ also said despite strong private sector credit, broad money (M2) growth decelerated to 10.7 per cent in the Q2 of FY18, driven by the negative growth of government's credit from the banking system and declining net foreign assets in the banking system.
Banking sector performance indicators, such as asset quality, capital to risk-weighted-asset ratio (CRAR), and profitability, witnessed some improvements in the Q2 of FY18, it added.
However, the banking system faced some liquidity pressures, as credit growth exceeded deposit growth and the net sale of foreign exchange absorbed some liquidity, according to the BBQ.
Despite robust remittance inflows, strong import growth (23.6 per cent in the Q2 of FY 18) -- fuelled by capital machinery and food imports -- against a 7.7 per cent growth in exports resulted in a wider current account deficit during the period under review.
"The rising trend in overall fiscal expenditure and annual development programme over moderate growth in revenue collection led to a wider fiscal deficit in the Q2 of FY18," the BB said.
Deficit financing, as in the recent past, relied mostly on borrowing from the non-bank and foreign sources. Capital market witnessed a mixed trend during the period under review.
The DSE broad index (DSEX) reached 6244.5 at the end of December 2017 from 6092.8 at the end of September 2017, an increase of 2.4 per cent.
However, the market turnover declined by 28.3 per cent during the quarter, the BBQ added.
