Continuation of contractionary monetary policy for the second half of FY24, announced as part of the new monetary policy statement (MPS), may impede the expected bullish trend in the capital market amid a post-election atmosphere say market experts.
The rise in the interest rate, triggered by the increase in the official rate, could accelerate the liquidity crisis plaguing the stock market, as investors are likely to divert funds towards fixed income assets, they note.
Bangladesh Bank Governor Abdur Rouf Talukder launched the new MPS last Wednesday. The central bank once again raised the official interest rate in the new monetary policy to reduce inflation to 7.5 percent.
However, the regulator is still unwilling to leave the interest rate entirely in the hands of the market.
The official rate has been increased by 25 basis points to 8 percent. Furthermore, the moving parity system has been introduced to avoid volatility in the foreign exchange market. The regulator hopes that the price of the dollar can gradually adjust and that stability returns to the market.
It notes that the stock market regulator, Bangladesh Stock Exchange Commission (BSEC), in collaboration with Bangladesh Bank and other relevant government entities, has consistently spearheaded initiatives to foster a robust capital and bond market in the country. .
EBL Securities, a leading stockbroker in the country, said in its monetary policy review: โInterest rates are likely to rise following the increase in policy rate by 25 basis points and expectation of central bank intervention in the foreign exchange market. maintain the exchange rate within the established band.
โThis interest rate increase is likely to benefit the profitability of listed banks and NBFIs. Publicly listed companies with significant investments in fixed deposit instruments will also continue to benefit from this high interest rate environment.โ
The review said that the continuation of contractionary monetary policy may impede the expected upward trend of the capital market after the election period.
"With the expected rise in G-Sec coupon rates and deposit rates of financial institutions, some money market funds could be channeled into less risky fixed income instruments in the coming months," EBL Securities said. .
This will negatively affect market rotation and stock market liquidity. He said publicly traded companies with substantial leverage will also have to deal with the challenges of higher financial expenses.
The review indicated that the introduction of the mobile exchange rate is expected to have a positive impact on companies with significant exposure to currency risks, as this will communicate to stakeholders in advance the expected band of exchange rates, thereby reducing the uncertainty associated with the current exchange rate. regime.
According to Md Moniruzzaman, MD & CEO, Prime Bank Securities, โA higher interest rate aimed at flushing out extra money from the economy will hamper the profitability of highly leveraged listed companies.
"On the other hand, it will favor multinational companies and firms with high levels of cash or cash equivalent assets."
Saiful Islam, President, DSE Brokers Association (DBA), said, โInterest rate hikes are always bad for the stock market because investors turn to Fixed Deposit Receipts (FDR) to earn a return.โ sure.
"Therefore, with the new monetary policy, the flow of funds into the stock market will be restricted."
Meanwhile, the interest rate increase will further deter businesses from taking on debt and therefore reduce private sector credit growth, Green Delta Dragon Asset Management Company said in its review.
The government is taking austerity measures and therefore public credit growth will also remain moderate. Therefore, bank loan growth is expected to be in the low range, he added.
The Dhaka Stock Exchange (DSE) ended the first week of domestic pools, triggering a rally with the key index crossing the psychological threshold of 6,300 mark after almost four months.
Ahead of the election week, Dhaka stocks ended flat, with lower market share due to low confidence in market momentum.
After the negotiation session [on Thursday]After the presentation of the new MPS on Wednesday, DSEX dropped by 9.5 points and stood at 6,337 points, compared to 6,346 points in the previous session.
The indices saw volatility throughout the session as sellers dominated the market to realize their short-term gains, wary of a likely change in market momentum following recent interest rate hikes in the recent contractionary stance of the central bank's monetary policy, market experts said.
