January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

Macroeconomic Digest
Monetary Policy Statement Jan-Jun 2016 Review

Embracing expansionary policy to stimulate investment

Overview
Bangladesh Bank has shown all intentions of spurring the economy which is aiming a trajectory towards 7% GDP growth.
The central bank, after a long period of time, has reduced the policy rates by 50 basis points. Higher growth rate has been
targeted for Broad Money, Domestic Credit, Public Sector Credit and Private Sector Credit in June 2016 compared to the
actual growth achieved in Dec 2015. Inflation is expected to reduce to 6.07% by June 2016 from 6.2% in Dec 2015 mainly
due to low fuel and commodity prices globally, even after pay scale revision in the Government sector. This investment
stimulating monetary policy focuses on financial inclusion through selective easing for different productive sectors, strate-
gic move in loan disbursements to green and budding projects in the backdrop of excess liquidity in the banking system.

BB reaffirms GDP growth rate close to 7%

The GDP growth rate of Bangladesh was 6.1% in 2014

which has been consistently around 6% for the last few
years. A recent study of World Bank has shown that for
each percentage point increase in growth of India,
growth of Bangladesh increases by 0.4 percentage
points and growth rate of India recently exceeded its
previous levels to a projected level of 7.5% in 2016. As
per the world economic outlook of IMF, emerging and
developing nations will face a growth of 4.7% in 2016.
IMF projected growth rate of Bangladesh to be almost
double of that of global GDP growth and also more than
that of China. In line with this forecast, the targeted
growth of 6.8% in FY16 for Bangladesh seems achievable
if the economic and political environment remain con-
ducive. BB forecast based on ARMA model and sector
wise 10 years average growth reaffirms a possible GDP
growth rate of 6.8%-6.9% which is very close to the 7%
growth target of the Government.

1 IDLC Securities Research

 January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

Higher Broad Money supply targeted

Broad Money (M2) growth has been targeted at 15% for FY16 which was at 12.4% in 2014-15. The target has been set after
taking the public and private sector credit growth into consideration. M2 is adequate to support the growth and inflation
target of BB.

General inflation in a downward trend but rise in nonfood inflation remains a concern
Inflation has been well managed in the recent years- the general inflation dropped from above 7% of mid-2014 to 6.1% in
Dec 2015. The decline can be attributed to depressed global commodity market and falling fuel price. Moreover, the food
component occupies about 60% of our consumption basket and the price of food is falling all over the world. However, the
nonfood inflation is in an upward trend since Oct 2014 and may cause BB to be a bit cautious. The pay rise in the Govern-
ment sector is likely to push up prices but expected fuel price adjustment in the country may pull it down again.

2 IDLC Securities Research

 January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

Policy rate cut by 50bps is the highlight of the monetary policy

Repo rate of 7.25% has been reduced to 6.75% and reverse repo rate of 5.25% has been lowered to 4.75%. BB expects to
stimulate investment in the economy to achieve the higher GDP growth target in the upcoming fiscal year. Meanwhile,
yields on T-bill and T-bond are falling followed by call money rate because of excess liquidity in the economy.

In January 2012, the repo and reverse repo were revised

upwards by 50bps from 7.25% to 7.75% and 5.25% to
5.75% respectively. After that, both the rates were revised
downwards by 50bps in Feb 2013 where they remained
same for almost three years. Finally they have been re-
vised downwards again to support the expansionary mon-
etary policy.

3 IDLC Securities Research

January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

Achievable credit growth targeted

Both public and private sectors credit growth undershot the targets for Dec 2015. Public sector credit growth was 1.7%
compared to the target of 8% while private sector credit growth was 13.8% compared to the target of 14.3% for Dec 2015.
As a result, total domestic credit growth was 14.2% compared to the target of 15%. BB has revised down its June 2016 tar-
get mentioned in its MPS of June 2015 to an achievable level. BB targets domestic credit growth rate of 15.5%, public sec-
tor credit growth of 18.7% and private sector credit growth target of 14.8% for June 2016

4 IDLC Securities Research

January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

Foreign Reserves likely to remain stable around current level

Bangladeshs current FX reserve stands at USD 27.5 billion

which is sufficient to meet more than 7 months of import
payment. However, BB estimates the export and import to
grow by 8.5% in FY16 and remittance to increase by 5% for
the next fiscal year. This will put pressure on the foreign
exchange reserve. However, lower fuel import cost will
benefit countries like ours. On the other hand, the number
of people going abroad for jobs is rising and it is expected
that the remittance will remain stable amid on going crisis
in the middle east. BB projects current account balance to
be USD 955 million and BOP to be USD 2.28 billion in 2015
-16.

5 IDLC Securities Research

January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

BB reaffirms commitment towards a vibrant capital market

Bangladesh capital market, which has stabilized after 2010 bubble, has been well dealt with by SEC and BB for making it
vibrant. BB has devised ways to make the stock market operate in full swing even after the central bank reigned in the expo-
sure of commercial banks in the stock market to realign them to global standards.

Central bank tough on commercial banks bad lending. BB also taking important qualitative
initiatives towards financial inclusion

The central bank is clamping down on banks to reduce

their bad loans and enhance efficiency to decrease
the spread. BB is taking steps to counter the alarming
growth of classified loan with the help of all the banks.
Stress testing has become a routine supervisory tool for
them.

BB has been directing the commercial banks to utilize

their idle liquidity for helping farm and nonfarm Micro
Small and Mediam Enterprises (MSMEs). BB believes
this will create productive credit demand and new em-
ployment opportunities.

Green projects are also given the opportunity to get lower rates as WB committed to contribute USD 300 million cred-
it for various projects. BB will also add another USD 200 million to the fund making it a total of USD 500 million. The
USD 300 million fund will be utilized for medium to long term foreign currency financing of manufacturing projects.
BBs USD 200 million fund will be specifically used to help greening initiatives of export oriented textiles, apparel and
leather sectors. BB will also extend low cost fund for promoting woman entrepreneurship, skill building projects and
energy expansion initiatives. Export Development Fund (EDF) has been raised to UDS 2 billion to accommodate
such selective easing by BB.

6 IDLC Securities Research

January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

DISCLAIMER
The information contained in this report has been compiled by IDLC Securities Limited (IDLC-SL) from sources believed
to be reliable, but no representation or warranty, express or implied, is made by IDLC-SL as to its accuracy, complete-
ness or correctness. Expressions of opinion herein were arrived at after due and careful consideration and were based
upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing
at that time. All opinions and estimates contained in this report are subject to change without notice due to changed
circumstances and without legal responsibility. This document is not, and should not be construed as an offer or the
solicitation of an offer to buy or sell any securities. It does not constitute a personal recommendation or take into ac-
count the particular investment objectives, financial conditions, or needs of individual clients. Clients should consider
whether any advice or recommendation in this research is suitable for their particular circumstances. IDLC-SL accepts no
liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained
herein.

IDLC-SL and its affiliates, officers, directors, and employees may have positions in, and buy or sell, the securities, if any,
referred to in this Document. Our salespeople, traders, and other professionals may provide oral or written market com-
mentary or trading strategies to our clients and our proprietary trading desks that may reflect opinions that are contrary
to the opinions expressed in this Document and may make investment decisions that are inconsistent with the recom-
mendations or views expressed in this research.

By issuing this research report, each IDLC-SL analyst named in this report hereby certifies that the recommendations
and opinions expressed herein accurately reflect the research analyst's independent views about any and all of the sub-
ject securities or companies discussed herein and no part of the research analyst's compensation was, is, or will be, di-
rectly or indirectly, related to the specific recommendations or views expressed in this report. On top of that, no part of
the research analyst's compensation was, is, or will be, directly or indirectly related with any kind of investment banking
activities.

This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resi-
dent of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or
use would be contrary to law or regulation. The information and data provided herein is the exclusive property of IDLC-
SL. No part of this material can be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed
without the prior written consent of IDLC-SL.

7 IDLC Securities Research

January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

SHORT BIO OF IDLC-SL RESEARCH TEAM

Kazi Monirul Islam, CFA joined IDLC Securities Limited as the Head of Research on May 26, 2014. He received his CFA
Charter in 2014. He completed his graduation from Department of Finance, University of Dhaka. He has diverse experi-
ence of working in different institutions of Bangladesh Capital Market such as Brokerage Firm, Merchant Bank and Asset
management Company. He started his career back in 2009 as an Analyst in Asian Tiger Capital Partners Limited. He left
the Company as Assistant Vice President and joined in IL Capital Limited as Head of Investment. He teaches capital
market professionals in Bangladesh Institute of Capital Market (BICM) as Guest Speaker.

Md. Saimum Hossain is a Research Consultant in IDLC Securities. He graduated from the Faculty of Business Studies
(FBS), University of Dhaka with a major in Finance. He started his career in the Bangladesh office of a macro-focused
global hedge fund based out of New York as a buy-side analyst in June 2013 and subsequently switched to sell-side
research. He is actively pursuing the CFA Charter and has passed Level II of the CFA examination. He has a specialization
in business plan development and writing. Apart from being a Pharmaceuticals sector specialist, he teaches investment
management at one of the top business schools of Bangladesh called Faculty of Business Students (FBS), University of
Dhaka.

Nahiyan Nasir is a Research Analyst in IDLC Securities. He is enrolled in the CFA program since March 2014 and is a
CFA Level III candidate for 2016 exam. Nahiyan completed his B.Sc. in Mechanical Engineering from Bangladesh Univer-
sity of Engineering & Technology (BUET) and obtained his MBA from IBA, University of Dhaka with a major in Finance.
He is a Certified Energy Auditor (CEA) and a member of Association of Energy Engineers (AEE) since December 2014. He
currently covers Energy, Construction and IT sectors.

Ayaz Mahmud is a Research Analyst in IDLC Securities. He passed CFA Level III exam in 2013 and awaiting for CFA char-
ter. Ayaz completed his BBA from BRAC University. He was awarded VC's gold medal for achieving highest CGPA from
his department. Ayaz eventually obtained his MBA from IBA, University of Dhaka ending up among the top three in his
batch. He has commendable analytical ability and covers Bank, NBFI, FMCG and Textile sector.

Nazmus Saadat is a Management Trainee in IDLC Securities limited. He has graduated as a Finance major from Institute
of Business Administration (IBA), University of Dhaka. He is passionate about investment research and risk management
issues. He has passed CFA level I examination held in June 2015. He currently covers Telecommunication, Ceramic, Food
and Footwear industries.

8 IDLC Securities Research

January 14, 2015 IDLC-SL MPS Review Jan-Jun 2016

CONTACT DETAILS

Md. Saifuddin
Managing Director
Email: saif@idlc.com
Cell: +880 1730 09 32 37

Kazi Monirul Islam, CFA Md. Momin Uddin

Head of Research Head of Foreign & Institutional Sales
Email: monirul@idlc.com Email: momin@idlc.com
Cell: +880 1777 75 97 91 Cell: +880 1713 36 30 50

Md. Saimum Hossain Nahiyan Nasir

Research Consultant Research Analyst
Email: IDLCSLResearch@idlc.com Email: nahiyann@idlc.com
Cell: +880 1717 33 70 79 Cell: +880 1722 64 44 41

Ayaz Mahmud Nazmus Saadat

Research Analyst Management Trainee
Email: ayaz@idlc.com Email: nsaadat@idlc.com
Cell: +880 1730 09 78 99 Cell: +880 1670 07 35 43

IDLC Securities Limited

36, Dilkusha (13th Floor)
Dhaka - 1000
Tel: +88-02-9571842
Fax: +88-0 2-9574366
E-mail: IDLCSLResearch@idlc.com

9 IDLC Securities Research