Citigroup identifies 3 factors to keep CPI inflation within 6.5pc

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FE Report
The US-based Citigroup has identified three key risk factors which need reckoning to keep the Consumers' Price Index (CPI) average inflation within 6.5 per cent during the current fiscal year.
The key risks include trends in gas, fuel, and power prices, wage revisions and higher public spending, particularly on agriculture and small and medium enterprises lending.
"While active management of liquidity would thus be imperative, moderating remittance inflows as well as a pick-up in investment activity would help curtail liquidity pressures," the Citigroup said in a report released Monday from Mumbai, India.
The monetary policy is likely to be proactive, the report said, adding that Bangladesh Bank (BB) has reiterated that it would remain 'proactive in liquidity management operations and policy rate adjustments' as warranted.
"While we continue to expect the Bank (BB) to manage liquidity through shorter-term instruments; explicit rate hikes can no longer be ruled out if inflation continues to surprise on the upside," it noted.
The government projects real gross domestic product (GDP) growth in fiscal year 2009-10 (FY10) and FY11 at 6.1 per cent and 6.7 per cent respectively following the 5.9 per cent growth seen in FY09
"While estimates are based on 'benign developments on all fronts', they would entail addressing energy shortages, ensuring higher agriculture and manufacturing growth, and resolving labour unrest. We believe estimates are slightly optimistic," the report added.
The Citigroup forecasts factor in GDP at 5.7 per cent in FY10 and 6.1 per cent in FY11.
The report also said double-digit growth in exports as well as imports would likely result in the current account surplus narrowing by FY11. However, capital inflows are expected to see robust trends.