BB steps up fight against inflation

FE Team | Published: March 12, 2010 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam
The Bangladesh Bank has stepped up its efforts to curb inflation in the country, introducing a slew of new measures this week to mop up excess liquidity from the market, officials said Thursday.
The central bank has resumed auction of its 30-day bills after nearly two months, raised interest rates on government securities especially bonds and holding reverse repos regularly as part of its intervention in the market.
Officials said although the latest moves do not mean that the BB is making any radical shift in its accommodative monetary policy, it has made its intention clear to combat runaway inflation head-on.
Inflation peaked 15-month high to 8.51 per cent in December 2009 on point-to-point basis, but International Monetary Fund and some agencies have predicted that the prices could hit double digit in the middle of this year.
"We fear that the upward trend in prices would continue for some time as food prices have increased in domestic and global markets," a senior BB official told the FE.
"We have already introduced some policy measures to soak up excess liquidity from the market as part of our battle against inflation. These measures will be continued in the near future," he said.
Excess liquidity of the country's scheduled banks stood at Tk 343.59 billion in November last year against Tk 347.62 billion in June 2009, according to the central bank statistics.
Officials said a bumper harvest of boro crops in May-June could defuse price pressure. "But until then, we may continue our policy interventions," the official said.
The BB is confident that interest rate hikes on government bonds would not weigh on the credit market in the country. "There is no reason the banks should think of increasing their interest rates," another official said.
As part of the latest initiatives, the Bangladesh Bank (BB) resumed the auction of 30-day Bangladesh Bank Bills on March 8 last after nearly two months of suspension, officials said.
Market operators expect that the call money rate, which is hovering between 2.50 per cent and 3.00 per cent, may move slightly upward with the resumption of the auctions.
The interest rates on government securities particularly bonds and BB bills have been increased from the beginning of this month to woo banks and financial institutions to buy the instruments.
Officials said the central bank is now monitoring the overall inflationary pressure on the economy day-to-day to contain its rapid rise in the coming months.
Former Bangladesh Bank chief economist Mostafa K Mujeri welcomed the BB's limited intervention in the market, saying bolder moves such as increased short term policy rates, could inflict more damages than good to the economy.
"The BB should watch the situation very closely. But it has to keep in mind that inflation is rising across the globe including in all the South Asian countries," he said.
"It should not adopt any heavy-handed approach to fight inflation that may affect the supply side of the economy," he said.