Bangladesh Bank should maintain its tight monetary policy without losing patience to curb the inflationary pressure on the economy.
The authorities should also rein in public spending while ensuring competition in the commodities market as a strategy to stabilise prices.
While talking to The Financial Express, economists put forward the suggestions as inflation in Bangladesh hit high at 10.87 per cent year-on-year in October 2024.
According to the Bangladesh Bureau of Statistics (BBS), food inflation reached 12.66 per cent, with rural food inflation even higher at 12.75 per cent-the levels not seen in many years. However, non-food inflation maintained relatively lower levels.
Dr. Zahid Hussain, a former lead economist at the World Bank, said that the central bank should stick to its tight monetary policy stance without wavering.
"This is crucial for controlling domestic demand growth and stabilising the exchange rate to prevent inflation from escalating further," he noted.
However, he warned that the tight monetary policy alone may not bring inflation down quickly. "Supply-side efficiency is essential. Relying on ineffective measures like market policing only exacerbates the problem," he added.
He emphasized that the focus should be on making markets more competitive rather than controlling prices through directives and fines that often lead to supply chain disruptions as the suppliers tend to recover fines by increasing the prices.
Dr. Mohammed Abdur Razzaque, chairman of the Research and Policy Integration for Development (RAPID), suggested a combined approach of the current contractionary monetary policy and a reduced public spending. Additionally, he recommended increasing imports of essential items.
"The persistent pressure on foreign reserves means traders still struggle to finance imports," he explained.
Dr. M. Masrur Reaz, chairman of the Policy Exchange of Bangladesh, noted that market monitoring is critical, particularly with cartel-like organisations manipulating prices, as seen recently with onions and eggs.
"This is a governance issue that needs to be addressed seriously," he stated.
He also emphasised that the easing of import restrictions is crucial to improving supply and reducing inflationary pressures. "Without returning import levels to normal, supply constraints will persist, further driving up inflation."
In mid-2022, Bangladesh Bank increased the letter of credit (LC) margin to stabilise foreign reserves, which had been declining rapidly following the outbreak of the Ukraine war.
However, the reserve situation is now improving due to increased remittance inflows and export revenues.
Dr. Masrur pointed out that the government has implemented several measures to address the economic situation, including setting the policy rate at 10 per cent. It has stopped printing money.
Additionally, the government has introduced fiscal measures, such as reducing import duties, to help facilitate essential imports.
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