INTERVIEW-Bangladesh central bank cuts growth forecast to 6.2 pct

Thu Oct 3, 2013 3:50pm IST

* FY 2014 growth forecast cut to 6.2 pct from 7.2 pct-central bank head

* Central bank has been intervening to slow taka currency's rise

* Says exports remain competitive despite taka's fall vs Indian rupee

By Serajul Quadir

DHAKA, Oct 3 (Reuters) - Bangladesh's central bank has cut its growth forecast by one percentage point to 6.2 percent for current fiscal year due to a weaker global environment and political uncertainty ahead of elections, Governor Atiur Rahman told Reuters in an interview.

Rahman, said the Bangladesh Bank would remain "firm" in its policy stance ahead of the polls, which are due by January at the latest, and would continue to intervene to smooth a rise in the currency that has been driven by a hefty current account surplus.

"Our economy may grow 6.2 percent in fiscal 2014, which is respectable and quite healthy given the global developing average," Rahman said in an interview late on Wednesday.

The forecast for the fiscal year that began in July was cut from a projection of 7.2 percent made in the June budget. The economy grew 6.0 percent in 2012/13.

Emerging markets around the world have been hit by a withdrawal of funds by investors ahead of an expected winding back of some of the U.S. Federal Reserve's monetary stimulus.

The Bangladesh Bank cut rates in February and has since held its key repo rate at 7.25 percent.

"We will remain firm on our monetary policy stance... which takes into account the fact that there will be a political transition," Rahman said.

Bangladesh's violent factional politics and poverty have obscured an economic performance that has put it among the fastest-growing economies in Asia on the back of its textiles industry and remittances from overseas workers.

It was in the international spotlight earlier this year when more than 1,100 people were killed in a garment factory collapse.


Compared with India, burdened by a large current account deficit and budget woes, and Pakistan, which relies on support from the International Monetary Fund, Rahman's problems appear mild.

Bangladesh has a $3 billion current account surplus that has bolstered the value of its taka currency by about 2.5 percent against the dollar since July. The central bank has intervened in the currency market to moderate the pace of the increase.

"We have done it (intervention) for exporters, and the strength of the taka really originates from its current account surplus," Rahman said

The 15 percent rise in the value of the taka against the ailing Indian rupee is more troubling for the export-dependent economy of about 160 million people.

"We import cotton from India and garment exporters are getting benefits from that cheap price, but our jute is having a problem, because we export jute to India, and also some agro-processing industries," the governor said.

Agro-processing includes products such as fruit juices and other beverages.

"I don't think there is a need to sound an alarm bell. Despite the depreciation of Indian rupee... we will remain competitive in the international market."

Looking further out, Rahman said Bangladesh was well positioned to win business from companies forced out of China by rising wages there.

"About $20 billion worth of Chinese exports will be shifted because of their lack of competitiveness due to wages and prices," Rahman said.

"We will certainly grab part of that and that will give us an extra edge." (Editing by David Chance and John Mair)

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