Dhaka, Bangladesh
Economists for BB vigilance on inflation risk

Economists for BB vigilance on inflation risk

Unnayan Onneshan projects lower GDP growth

Eminent economists of the country advised Bangladesh Bank (BB) to be more cautious to contain inflation, which has already appeared as the major threat to reshape the economy, dented by the recent political unrest, report agencies. The country’s inflation was in a rising trend in December mainly because of the opposition-led repeated political blockades that hiked the transport costs. According to Bangladesh Bureau of Statistics (BBS), the general point-to-point inflation in December notched up 7.35 per cent from 7.15 per cent in November, when food inflation rose to 9.00 per cent and the non-food inflation to 5.88 per cent. “The rate of inflation would rise further next month due mainly to the increase in wages of workers in garment and other sectors,” Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI) said. Mansur, a former economist of the International Monetary Fund (IMF), said the central bank already included some cautionary measurers in its recently released Monetary Policy Statement (MPS), but the increasing threat should be addressed by a continual and effectual process. In the MPS, unveiled on January 27, the BB said it would target bringing average inflation rate to 7.0 per cent by using both monetary and financial sector policy instruments. Commenting on the MPS, Mansur said BB in its new policy encouraged more companies and businesses to enter into capital market to get their funding. “If big companies and sectors get fund from the capital market instead of banking sector than the excessive dependency of business on the capital market would reduce,” Mansur said. Dr Salehuddin Ahmed, a former BB governor said the BB’s monetary policy stance would help stable the inflation, but it would remain a major concern requiring constant attention from the central bank. He said the MPS lacked specific instruction to reduce expenditure in non-productive sector, which is one of the major causes of inflation. He advised BB to have continuous policy measurers for making foreign resources more available and mobilizing more domestic savings, which would help achieve non- inflationary growth. The economist believes that the MPS would help recover the economy that suffered most from the recent political turmoil. Besides these economists, vice-president of the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI), Helal Uddin, said the monetary policy should include clear instruction about lending rate to keep inflationary pressure under control. He said higher bank rate would slow down investment in productive sectors, which would eventually inflate inflation. Meanwhile, Unnayan Onneshan, an independent multidisciplinary think-tank, projected that the real rate of growth in GDP in the current fiscal year may decline to 5.65 per cent. The research organization in its current issue of the Bangladesh Economic Update on Monetary Policy Statement (MPS) said the falling private sector credit growth will continue to suppress investment demand, resulting in decline in rate growth in gross domestic product (GDP). The UO, however, states that the growth in GDP may fall below the decadal average of six per cent due to fiscal and monetary management trap, functioned by lack of policy farsightedness and political contestations Moreover, it observe that reduction in investment and growth for the successive three years from those of the preceding ones, on the one hand, and the increase in inflation on the other may cause pressure on the macroeconomic stability of the country. Urging for a new policy approach, the think-tank said: “Recent declining trend in private sector credit growth, which has factually been causing the growth of the economy to decline in the last three years in a row, can be restrained through a harmonisation of fiscal and monetary policy.” It also observed that the slow demand for investment has been reflected in the credit deposit ratio. The overall credit-deposit ratio in the banking sector decreased to 70.80 per cent in December 2013 from 71.91 per cent in November 2013. The credit-deposit ratio was 76.59 per cent in December 2012 and 80.33 per cent June 2012. As regards the credit growth in real sector, the organisation states that the disbursement of industrial term loan stood at Tk. 8880.79 crore in the first quarter of the current FY 2013-14, which is the lowest among the last five quarters, whereas it was Tk. 9720.3 crore in the first quarter of the previous FY 2012-13. Referring to the SME loan, the organisation notes that state owned banks observed a negative growth of 38.47 per cent at the end of September 2013 compared to September 2012. In FY 2010-11, the GDP growth rate was 6.71 per cent, which declined to 6.23 per cent in FY 2011-12, and further fell to 6.03 per cent in FY 2012-13.

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