The private-sector credit growth shrunk by 2.26 percentage points over the second quarter, sliding down from 17.2 percent at end-September to 14.94 percent on December 31, according to Bangladesh Bank (BB) data.

Similarly, the government borrowing trend also marked a 9.19-percentage-point decline over the quarter thanks to the third tranche of Development Support Credit received from the World Bank and a sales hike in the savings instruments in December.

The sales of savings instrument that had ebbed in September through November peaked in December following an interest rate hike by the government.

The net government credit growth dipped to 21.21 percent at end-December from 30.4 percent on September 30.

On the contrary, the credit growth to the state-owned agencies posted an 8.41-percentage-point hike over the quarter, hitting 60.21 percent on December 31 from 51.8 percent on September 30. The increase was mostly due to a heavy bank borrowing by Bangladesh Petroleum Corporation (BPC) to meet its growing fuel costs.

In the recent months, the BPC borrowed around Tk 10,000 crore from the nationalised commercial banks, with Sonali Bank alone lending Tk 6,000 crore. As a result, the bank is now facing a critical liquidity crisis and is considering seeking help from the finance ministry soon to survive the situation, sources said.

The central bank is pursuing the tight monetary policy expressly to ease pressure on the balance of payment (BoP) and rein in inflation. It is why the interest rates on bank loans, treasury bills and called money are high now. The BB aims to bring down the rates of private-sector credit growth to 13.9 percent, net government credit growth to 26.5 percent and other public sector credit growth to 29.4 percent by June 2006.

Due to an unrelenting depreciation of taka, the import growth has slackened substantially. The growth rate came down to 12.10 percent in the first half of FY06 from 22.84 percent in the same period in FY05.

The growth rate of letter of credit (LC) opening also dipped to 1.87 percent in July-January of the current FY from 23.20 percent in the corresponding period of FY05.

Import is becoming costlier everyday as the value of taka has eroded substantially over the last one month. The price of US dollar yesterday reached as high as Tk 71.40 in LC opening.

Sources said some banks even sold dollar at more than Tk 75 to the importers. The dollar price was around Tk 66 in September 2005.

The average interest rate on lending increased from 10.93 percent in June 2005 to 11.15 percent in September. Banking sources said the rate is still on the rise.

The tight monetary policy has also decelerated the inflation. The point-to-point inflation that was 7.68 percent in July 2005 dipped to 7.07 percent in December.

The overall deficit in the BoP has also dipped. For instance, the BoP deficit declined by $262 million over a single month, from $369 at end-November to $107 million at end-December.

In the first half of FY05, the BoP posted a surplus of $393 million.