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BB warns of higher inflation

Nazmul Ahsan

The economy risks facing higher inflationary pressure in the coming months on the back of demand-push factor and impact of a proposed new pay scale for public servants, Bangladesh Bank warned in a confidential report.
The BB report on macro-economic fundamentals and their outlook for the rest of the current fiscal year was submitted to the finance ministry, ahead of a meeting of the fiscal coordination committee slated for next Thursday.
The risk of growing inflation could be compounded further by the rising inflationary trend in neighboring India, the report added, saying, ‘Persistent inflationary trend plaguing India could have a spillover effect on Bangladesh economy.’
Highlighting the series of countrywide blockade and hartals enforced by opposition political parties in recent months, the report said food inflation rose to 9 per cent in December from 8.3 per cent in June as a result of unabated political turmoil.
The rise in overall inflation, which marked 7.5 per cent in December from 6.8 per cent in June was entirely due to high inflation in food prices, it added.
There remains a small chance of a subdued inflation in future with the apparent normal political environment existing in the country and return of normalcy in transportation and supply side trajectories, the report opined.
‘However, amid possibility of increasing overall local demand,  announcement of a new pay scale for public servants and persistent rise in inflation in India may cause higher inflation in coming months,’ cautioned the BB.
The report underlined the need for keeping the bank borrowing target of the government in check and within the budgetary limit.
BB expressed its satisfaction over the 18.02 per cent export growth and import growth of 15.80 per cent over the period of July-November of the current fiscal year, though the inward remittance registered 8.50 per cent negative growth during the first half of 2013-2014.
BB in its monetary policy unveiled last week targeted bringing down the average inflation rate to 7 per cent in the current fiscal year.
Limiting government borrowing from the banking sector is important for achieving inflation targets and providing the space for banks to lend to the private sector, the policy added.
The bank borrowing target set for the fiscal was Tk 26,000 crore.
The government’s bank borrowing dropped 18 per cent in the first half of the fiscal year due to low development spending and high sales of national savings certificates, BB sources said.
They, however, said the government normally becomes heavily dependent on increased amount of bank borrowing at the end of almost each fiscal year, which has every chance of repetition this time amid lackluster revenue earnings by the revenue board.
The finance ministry officials said they would examine the ups and downs of major indicators of economy in the first half of the current fiscal year before going for making revision at the ensuing coordination committee meeting with finance minister AMA Muhith in the chair.
A senior finance official said they were also worried over the inflationary impact on every household and overall economy after implementation of the new pay scale in June or July.
‘We have to find a solution optimising resources and their just utilisation, keeping in mind the risk factors and need of individuals,’ a senior finance official told New Age on Sunday.

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