BB suggests more analysis of current inflationary pressures

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FE Report
The central bank has recommended more analysis of current inflationary pressures, international commodity price shocks, domestic developments, lagged effects of monetisation of government debt and demand-driven inflationary expectations on the part of consumers.
"…A better understanding of monetary transmission mechanism, particularly, the role of short-term open market instruments, is also necessary," the Bangladesh Bank (BB) said in a press statement, released Sunday.
The third element of inflation fight regime would be the development of a secondary market of government securities, which will render the longer term instruments like five-year term and above fully liquid and thus lead to lower yield on long-term bonds, the statement added.
The central bank recommendations came when the country's consumers' price index (CPI) inflation shot up to 9.20 per cent on point-to-point basis in June last from 8.05 per cent in May 2007.
Besides, the inflation rate moved up to 7.20 per cent in June 2007 from 7.06 per cent in May last on annual average basis, according to the Bangladesh Bureau of Statistics (BBS) data, released recently.
The BB also said the lower yield on long-term government securities will in turn call for a decrease in term and other lending rates of scheduled banks and thus benefit investors and the borrowing public.
"It would also be necessary to sustain the lower long-term bond yields by creating a broad-based demand for Bangladesh Government Treasury Bonds (BGTBs) offering a structure of competitive yields," the statement noted.
The statement said these initiatives in the market for government debt instruments will also encourage firms to raise funds by issuing new equity as private investors will be promoted to look for higher return at the cost of higher risk.
The press statement, issued for the second monetary policy review (MPR) of the fiscal 2006-07, said the robust and steady growth of remittances, capital and financial account helped overcome the continuing negative balance in services and income accounts, as a result the overall balance of payment (BoP) over the first three quarters turned into a surplus of US$812 million vis-à-vis a deficit of $37 million in FY06.
"In this stable BoP environment with healthy growth of international reserves, the pressures on the currency has been greatly alleviated, and as a consequence the taka has appreciated a little against the US dollar, the major trading currency for Bangladesh," the statement added.
Exchange rate of taka per US dollar decreased to Tk 69.03 at the end of May, 2007 from Tk 69.67 at the end of June, 2006. Taka appreciated by 0.93 per cent as of end May, 2007 over June, 2006, according to the BB's statistics.