CPI inflation may exceed target

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FE Report
Citigroup has forecasted that the 12-month average Consumers Price Index (CPI) inflation might exceed the budgetary target and hit 7.0 per cent by the end of this fiscal.
"We expect the CPI to average 7.0 per cent year on year in fiscal 2009-10 (FY10) and 6.5 per cent in FY11," the US-based Citigroup said in a report released from Mumbai, India Friday.
The report also said factor determining price trends would also be the 'boro' crop production, which is targeted to rise by 6.7 per cent year on year.
The Citigroup earlier identified three concerns including pay scale revisions for government employees and pressure on food prices particularly rice on the inflation front in Bangladesh that could deviate from the budgetary target of keeping average inflation within 6.5 per cent this fiscal.
About increased cash reserve requirement (CRR), the Citigroup said the move comes on the back of a spate of policy tightening in the region, with both Australia and China raising rates over the last week.
"We believe the hike is aimed largely at containing inflation and mopping surplus liquidity and signals a shift away from the government's accommodative stance to achieve a balance between both growth and inflation," it added.
On Wednesday, the central bank of Bangladesh raised the CRR by 0.5 percentage points to 5.5 per cent for the commercial banks to curb inflationary pressure on the economy.
Other key policy rates - the repurchase agreement (repo) rate and the reverse repo rate - remain unchanged at 4.5 per cent and 2.5 per cent respectively since September last year.
Although the latest moves do not mean that the central bank is making any radical shift in its accommodative monetary policy, it has made its intention clear to ease inflationary pressures on the economy, BB officials said.
The country's inflation as measured by the CPI rose to 9.06 per cent in February 2010, up from 8.99 per cent of the previous month, according to the Bangladesh Bureau of Statistics (BBS) data.
The rate of inflation went up by 0.07 percentage points in February, over that of the previous month, mainly because of the increase in prices of food items.
"….we maintain our view that the Bangladesh Bank would likely manage liquidity through shorter-term instruments; explicit rate hikes can no longer be ruled out if inflation continues to surprise on the upside," the report noted.
The central bank in its latest monetary policy projected a further rise in the country's CPI inflation on a point-to-point basis in the coming months. However, it expressed hope that the 12-month average CPI would be within a 6.5 per cent range by the end of the FY10, as earlier projected by the BB.