BB raises reverse Repo rate to tame inflation

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Siddique Islam
The Bangladesh Bank (BB) has increased interest rate of reverse repurchase agreement (Repo) after nearly two years aiming to curb inflationary pressures on economy.
The central bank took the move after raising the interest rate of Repo to 8.75 per cent on September 17 last from 8.50 per cent.
The interest rate on reverse Repo was re-fixed at 6.75 per cent Wednesday from 6.50 per cent of the previous day for withdrawing fresh funds from the market.
A total of Tk 3.08 billion was withdrawn by the central bank through the reverse Repo auction on the day to mop up excess liquidity from the country's banking system.
"We've increased the interest of reverse Repo aiming to curb inflationary pressures on the economy through withdrawing excess liquidity from the market," a BB senior official told the FE.
Excess liquidity of the banking system stood lower at Tk 93.94 billion at the end of August last against Tk 129.88 billion as June 2008, according to the central bank statistics.
He also said the central bank revised its interest rate policy considering the country's overall economic situation.
Senior officials of commercial banks, however, said the BB's latest move indicates that the central bank is going back to its tightening monetary policy gradually from the existing accommodative one.
"The BB's changing monetary stance may discourage credit flow to the private sector in the near future," a senior treasury official of a private commercial bank told the FE.
Credit growth to the private sector has recorded a significant rise of over 26 per cent in the first two months of the current fiscal over that of the previous year.
Credit to the private sector rose by 26.14 per cent to Tk 404.21 billion in July-August period of fiscal 2008-09 from 15.76 per cent to Tk 210.51 billion of the previous fiscal, the BB's data showed.
Besides, Bangladesh taka (BDT) will be costly due to increase of interest rates on both Repo and reverse Repo auctions by the central bank, the treasury official added.
The central bank of Bangladesh maintained an accommodative monetary policy for nearly one year aiming to achieve maximum economic growth through expansion of credit to the productive sectors while keeping inflationary pressures under control.
Meanwhile, the country's Consumers Price Index (CPI) inflation rose to 10.06 per cent in September on an annual average basis from 10.01 per cent of the previous month mainly due to increase in prices of food items.
The food price inflation rose to 12.63 per cent in the month of September from 12.56 per cent in August on an average while that of non-food items remained unchanged at 6.01 per cent, according to the Bangladesh Bureau of Statistics (BBS) data.
On the other hand, the inflation rate slightly moved up to 10.19 per cent on a point-to-point basis in September from 10.11 per cent of the previous month because of higher prices of non-food items.