Steep inflation may be losing steam in the near future following tight monetary- policy stance coupled with governmental fiscal austerity, the central bank hopes.
The average overall inflation remained around 9.5 per cent during the first five months of this fiscal year, stoking price spikes.
The Bangladesh Bank has expressed the inflation-cooling hope in its latest report styled Bangladesh Bank quarterly (July-September 2023).
"As higher inflation remained a challenge for Bangladesh economy, current monetary and fiscal policies have provided topmost priority to containing the inflationary pressure," it says.
Looking over time ahead, all the policy initiatives undertaken by the central bank and the government signal anchoring the inflation expectation and are expected to have favorable impact on inflation outcome in coming periods, according to the report, released Wednesday.
It claims the overall fiscal stance in Q1FY24 (July-September 2023) aligned well with addressing current macroeconomic challenges.
Bangladesh faces macroeconomic challenges, including current-account deficit, higher inflationary pressure and lower resource mobilisation, among others.
On the belt-tightening to weather a crunch time, the BB report notes that the government has decreased its spending. "A significant reduction in government expenditure and substantial revenue collection resulted in a budgetary surplus of BDT 71.0 billion by the end of the first quarter of FY24 (July-September-2023)," it says.
"The government has taken various austerity measures for effective fiscal management amid the lower resource collection."
The BB quarterly review, however, finds food-price inflation having remained in double digits, significantly impacting the headline-inflation figure, while non-food inflation declined notably.
"The recent marked depreciation of the Bangladeshi Taka (BDT) against the US dollar continued to exert pressure," the quarterly reads.
The 12-month average headline inflation exhibited a gradual increase, reaching 9.29 per cent in Q1FY24, up from 9.02 percent in Q4FY23.
However, by official count, core inflation, excluding food and fuels, cooled to 6.82 per cent in Q1FY24 from 7.77 percent in Q4FY23.
The report says in addition to continuous increases in monetary-policy rate (repo rate) to abate the inflationary pressure, BB has stopped lending to government by increasing reserve money.
In the meantime, average yields on government securities for all short-medium- and long-term maturities marked an upward shift in September 2023 compared to June 2023.
The yields on 91-day, 182-day and 364-day treasury bills rose to 7.24, 7.40 and+ 7.97 percent in September 2023 from 6.80, 7.07 and 7.9 percent respectively in June 2023.
Correspondingly, the yields on 2-year and 5-year treasury bonds picked up to 8.65 and 8.99 percent in September 2023, respectively, from 8.09 and 8.71 percent in June 2023.
As expected, 15-year and 20-year treasury bonds traded at the highest rate of 9.49 and 9.76 per cent respectively, among the other instruments, in September 2023
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