Citi predicts higher yet manageable inflation

FE Team | Published: January 24, 2010 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report
Citigroup has identified three concerns that might fuel inflation in Bangladesh, but a higher agricultural growth could help keep the average inflation within 6.5 per cent in this fiscal.
Three concerns are pay scale revisions for government employees, an upward trend in development spending under Annual Development Programme (ADP) during the second half of this fiscal and pressure on food prices particularly rice.
"However, assuming no disruption to agricultural output, we expect trends to average 6.5 per cent during fiscal 2009-10 (FY10) from a 6.7 per cent average in FY 09," the Citigroup said in a report released Friday from Mumbai, India.
Apart from agriculture production, export trends need a close watch, the report added.
Production for the 'Boro' rice crop will help determine agricultural output. A shortfall would result in price pressures. Export growth -particularly textile -is also below target, but stimulus measures, announced in November last, could support trends, according to the report.
Boro rice production, which comprises 55 per cent of food gain production, will play an important role in determining agricultural growth, it added.
The Bangladesh Bank (BB) in its monetary policy, released Tuesday, projected a further rise in the country's Consumers Price Index (CPI) inflation on point-to-point basis in the coming months of this fiscal.
However, the central bank expressed the hope that the 12-month average CPI would be within the budgetary target by the end of FY10.
The country's CPI inflation increased slightly to 6.71 per cent on a point-to-point basis in October last from 4.60 per cent in September because of the rise in prices of both food and non-food items.
Accordingly, the 12-month average CPI inflation instead of declining would creep up in the second half of this fiscal. But it is expected to remain within 6.5 per cent range by the end of FY10, as projected by the BB in line with the budgetary announcement earlier.
The Citigroup also sees that the country's overall economy will grow at a rate of 5.7 per cent in FY10 from 5.9 per cent in FY09.
Finance Minister AMA Muhith in his budget speech, delivered on June 11 this year in parliament, projected the growth between 5.5 per cent and 6.0 per cent in FY10.
"Trends in industrial production are erratic, but a line of credit from India to support infrastructure is in the pipeline, which bodes well for industrial growth," the report noted.
It also said stronger relations with India -a culmination of Sheikh Hasina's visit earlier this month - should help support the thrust on infrastructure development.