Inflationary threats on the rise

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BANGLADESH Bank (BB) has voiced concerns over the higher inflationary trends in the recent past. According to a news report published on Monday, the central bank in a confidential report on ‘macro-economic fundamentals and their outlook for the rest of the current fiscal year’ to the Finance Ministry has warned of a continuation of creeping inflation even with a normal political environment and a return of normalcy in the transportation and supply side trajectories. It said the rise in overall inflation, as reported, marked a 7.5 percent increase in December from 6.8 per cent in June and held the high inflation in food prices responsible for it . It recorded a rise to 9 percent in December from 8.3 per cent in June, 2013.Pointing to rising inflationary trend in India, the report warned of a spillover effect on Bangladesh economy because of our higher import dependence on India which now stands at 16.3 percent of our import requirements. BB in its cautionary note said an increase in overall local consumption demand and implementation of a new pay scale for public servants in June or July may further cause higher inflation levels in the coming months. Its impact on households and the overall economy may be felt by the year-end. On point-to-point count, food inflation, now at 9 percent may then further rise to hard hit the common people. As we see the monetary policy statement of the central bank stated that the banks would try to bring down average inflation rates to 7 percent in the current fiscal year, but achieving it may be very difficult and much of it will depend on reducing government borrowing from banks which is always inflationary in nature. Moreover, access to bank credit for private sector should be enhanced in the new monetary policy statement but banks have been rather advised to lend only to creditworthy clients for productive investments. That means a discouragement to private credit growth and thus it indirectly creates more space for government borrowing.It is true that government borrowing has declined from banks in the first half of the current fiscal to Tk 46 billion against an annual target of Tk 260 billion while it is borrowing more through sales of bonds and national savings certificates. But there is a fear that its borrowing may rise again at the fiscal year-end which is a common phenomenon to meet fiscal demands. The possibility is high since the shortfall in revenue collection is too big and that means there may be a new push to inflation. So we believe that the government must reign in the unnecessary budgetary expenditure and Bangladesh Bank must try to funnel more bank credit to the productive sector to restrict the flow of easy money to the economy which pushes inflation. Moreover unnecessary import of consumption goods must be discouraged in one hand and the domestic supply line of food grains must be made smooth to lower food inflation on the other. Otherwise there is a big risk to growth as inflation may hit the economy hard.  

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