Capping inflation crucial for growth: ICCB
It says Bangladesh economy faces various risks, pressures
Dhaka, Apr 16 (UNB) - The country needs to pursue drastic measures in controlling the inflation rate to achieve its budgetary goals and economic growth rate of 7 percent above, said a leading trade body on Monday.
Bangladesh economy performed reasonably well in the second quarter of the current fiscal (Oct-Dec) when most of the developed world has been in the midst of a ‘recession’, the International Chamber of Commerce-Bangladesh (ICCB) said in its latest bulletin released on Monday.
About export performance, the report said the export growth in the first six months dropped to 14.7 percent after a superb performance of 41 percent export growth in the last fiscal year. “It’s still considered to be a respectable figure by any measure,” it said.
The bulletin (January-March) said the outlook for exports during the remaining period of the current fiscal is subdued by adverse developments in the Eurozone and a rather anemic recovery in the US economy.
Bangladesh economy faced a wide range of risks and pressures, including soaring inflation, hefty bank borrowings, and rise in government subsidies and low foreign aid disbursement in 2011, which may harden the macro-economic management of the country this year.
Besides, the economy also witnessed a fall in the private sector credit flow, depreciation of taka against dollar, higher import of products other than capital machineries and raw materials as well as current account balance deficit. “All these are going to be the main challenges for the current year as well.”
Inflation, unemployment and growth trend are the major factors of macro economies. Over the past few decades, the nexus between inflation and economic growth have drawn extensive attention of macroeconomists.
However, according to experts, inflation and growth rate have both positive and negative relationship depending on situation; but inflation and unemployment have a negative relationship.
Bangladesh’s inflation rate has maintained double digits since March last year. In the outgoing fiscal year, a major reason behind the galloping inflation was the depreciation of local currency against the US dollar.
The value of taka, which fell by over 15 percent during the outgoing calendar year (2011), was another threat to the economy as it had inflated the cost of imported goods having a knock-on-effect at the consumers' level and thus increasing inflation rate.
The average inflation during FY2011 increased to 10.70 percent from that of 8.13 percent in the previous year; reaching almost the 1987 inflation rate of 10.82 percent after 25 years.
The double digit inflation which is likely to continue during the remaining period of FY2012 ending in June, 2012 will hurt the poor and erode their purchasing power.
In addition to higher inflation, there are some other concerns for the country’s economy like high bank borrowings by the government that already exceeded the target of the current fiscal; dwindling remittance inflow, higher fuel import and lower disbursement of fund by development agencies that are not only causing depreciation of taka but also reducing foreign exchange reserve. All these are also creating pressure on the balance of payment.
The central bank’s monetary policy for the second half of the current FY12 (January-June 2012) is designed to support the government’s revenue policies in pursuit of “inclusive economic growth” and binding the inflation rate at 7.5 percent, but experts said it is very unlikely to be achieved.
Bangladesh could follow monetary policy strategy of some of the Asian economies, in particular of the China and India, which revised interest rates 12 times in the last 18 months; Bank of China revised two types of loan interests nine times, the report suggested.
Bangladesh economy performed reasonably well in the second quarter of the current fiscal (Oct-Dec) when most of the developed world has been in the midst of a ‘recession’, the International Chamber of Commerce-Bangladesh (ICCB) said in its latest bulletin released on Monday.
About export performance, the report said the export growth in the first six months dropped to 14.7 percent after a superb performance of 41 percent export growth in the last fiscal year. “It’s still considered to be a respectable figure by any measure,” it said.
The bulletin (January-March) said the outlook for exports during the remaining period of the current fiscal is subdued by adverse developments in the Eurozone and a rather anemic recovery in the US economy.
Bangladesh economy faced a wide range of risks and pressures, including soaring inflation, hefty bank borrowings, and rise in government subsidies and low foreign aid disbursement in 2011, which may harden the macro-economic management of the country this year.
Besides, the economy also witnessed a fall in the private sector credit flow, depreciation of taka against dollar, higher import of products other than capital machineries and raw materials as well as current account balance deficit. “All these are going to be the main challenges for the current year as well.”
Inflation, unemployment and growth trend are the major factors of macro economies. Over the past few decades, the nexus between inflation and economic growth have drawn extensive attention of macroeconomists.
However, according to experts, inflation and growth rate have both positive and negative relationship depending on situation; but inflation and unemployment have a negative relationship.
Bangladesh’s inflation rate has maintained double digits since March last year. In the outgoing fiscal year, a major reason behind the galloping inflation was the depreciation of local currency against the US dollar.
The value of taka, which fell by over 15 percent during the outgoing calendar year (2011), was another threat to the economy as it had inflated the cost of imported goods having a knock-on-effect at the consumers' level and thus increasing inflation rate.
The average inflation during FY2011 increased to 10.70 percent from that of 8.13 percent in the previous year; reaching almost the 1987 inflation rate of 10.82 percent after 25 years.
The double digit inflation which is likely to continue during the remaining period of FY2012 ending in June, 2012 will hurt the poor and erode their purchasing power.
In addition to higher inflation, there are some other concerns for the country’s economy like high bank borrowings by the government that already exceeded the target of the current fiscal; dwindling remittance inflow, higher fuel import and lower disbursement of fund by development agencies that are not only causing depreciation of taka but also reducing foreign exchange reserve. All these are also creating pressure on the balance of payment.
The central bank’s monetary policy for the second half of the current FY12 (January-June 2012) is designed to support the government’s revenue policies in pursuit of “inclusive economic growth” and binding the inflation rate at 7.5 percent, but experts said it is very unlikely to be achieved.
Bangladesh could follow monetary policy strategy of some of the Asian economies, in particular of the China and India, which revised interest rates 12 times in the last 18 months; Bank of China revised two types of loan interests nine times, the report suggested.
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