MCCI welcomes central bank's assurance about lending rates

FE Team | Published: July 30, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

FE Report
The Metropolitan Chamber of Commerce and Industry (MCCI), Dhaka welcomed Saturday the Bangladesh Bank's reported assurance that the lending rates "are not likely to be increased in the near future despite its pursuit of a tight monetary policy to check inflationary pressures".
In its reaction earlier to the Bangladesh Bank's fourth mid-year Monetary Policy Statement (MPS), the MCCI criticised the Bank's reported move to contain inflation by decreasing the money stock in a bid to check the rising prices, "which incidentally are linked to a plethora of non-economic factors".
The chamber, in its reaction on Saturday, pointed out again that it is "now well-documented that the current rise in inflation rate is induced by cost-push factors. A contractionary monetary policy cannot affect any of these factors. Instead, it will raise the cost of borrowing for the entrepreneurs, curb enthusiasm of businessmen to invest and subdue economic growth, while the major sources of inflation will remain beyond reach".
The chamber stated that much of the inflationary pressure in the economy "is due to excessive public spendings incurred out of large borrowings by the government from the banking system".
The MCCI reiterated that the Bangladesh Bank should consult the leaders of private sector business and industry, and collectively evolve a strategy for controlling inflation and achieving and maintaining the highest attainable output growth in the immediate and medium terms.
The central bank, it further stated, should not go ahead with the action plan under the MPS to increase of interest rates and to effect hike of statutory liquidity ratio (SLR) / cash reserve ratio (CRR) of banks in its bid to ease the inflationary pressures.
"It should be mentioned that it is being recognised that increased interest rates in the least developed countries cause higher inflation instead of helping reduction of the same", the MCCI stated while noting that the central bank should ensure that administrative prices of fuels, utilities and fertilisers are not increased, as higher prices will aggravate the inflationary situation. It is for such price increases, the inflation rate was higher in the rural areas than in the urban areas.