Prices start to fall in domestic market: Mirza Aziz

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FE Report
Finance adviser Mirza Azizul Islam said Sunday the government will take all possible steps to increase supply as part of its strategy to stabilise the commodity market.
Islam, who is also in charge of commerce ministry, said the government has already taken a series of steps such as intensifying open market policy, withdrawal of import duties, and developing alternative marketing channels to curb soaring prices of essentials.
"We're trying to encourage importers to increase import. And the central bank is extending cooperation in this regard," he added.
He stated prices of essentials have started to come down in the domestic market, due to the present administration's multiple interventions.
Speaking at a seminar on inflation, the finance chief also said that the government would protect the less-affluent so they could tide over shocks of fuelling inflation.
"If you compare the prices between local and international markets, you can see the difference … Prices of essentials have started to fall in the domestic market," Islam added.
The Policy Analysis Unit at Bangladesh Bank (BB) organised the seminar on "Inflation in Bangladesh: The Evidence and the Policy Alternatives" in the city, with former finance minister M Syeduzzaman in the chair.
Resident economic adviser of the BB Syed M Ahsan presented a paper outlining a model to fend off inflation that reached 7.2 per cent in June 2007.
According to official figures, food inflation has been higher at about 8.0 per cent over the past 24 months, while non-food inflation has been lower at slightly below 6.0 per cent.
Islam assured all concerned that the caretaker government would extend all possible assistance to the poor to absorb shock of inflation.
"Inflation hurts the poor … We'll go beyond budgetary measures, if needed, to shield the poor from the shock of inflationary pressure," he told the seminar.
Islam also responded to a volley of criticisms regarding the contractionary monetary policy, questioning the definition of the tight monetary policy statement issued by the BB in July.
"What's the definition of tight" monetary policy? If the government mops up excess liquidity from the banking system, that situation can be termed contractionary. But we're not doing that," he insisted.
Instead, he criticised the commercial banks for keeping the gap between lending rate and deposit rate at exorbitantly high.
"Why has this spread (between lending rate and deposit rate) remained high for many years? This is a question. I never got a satisfactory answer to this," the finance adviser said.
Taking part in the discussion as a panelist, executive director of the Centre for Policy Dialogue Debapriya Bhattachariya said if the central bank continues to pursue contractionary monetary policy" it would deliver a blow to the economy.
In his intervention, resident representative of the International Monetary Fund Jonathon Donne suggested that Bangladesh should continue to pursue tight monetary policy, notwithstanding the relatively high inflation.
"We believe Bangladesh should tighten further its monetary policy," Donne said, although he did not share any ideas of addressing inflation.
The CPD executive said if the government wants to keep the wheel of investment moving in the post-flood situation, it should take confidence-building measures to restore confidence among private investors.
In view of the price volatility in the international market, Syed M Ahsan said an appropriate policy response would be the "adoption of measures that minimise volatility in domestic food prices."
The measures will entail crafting long-term policy such as investment in agricultural research and extension, better anticipation of global versus domestic output volatility, adequate growth and better targeting of rural credit and adoption of price stabilisation measures.
Syed M Ahsan said the BB has been pursuing a cautious monetary policy stance since the final quarter of fiscal 2005. Since then the key policy rates such as the repo, reverse repo, and 28-day T-bill yield rates have increased gradually but steadily.
Despite steady withdrawal of liquidity via reverse repo auctions, the excess liquidity in the banking system has remained constantly high since June 2006, reaching over Tk 106 billion in April 2007, he added.
While global food shortages and consequent world price increase of cereals and edible oil have contributed to the country's recent food CPI (consumer price index) behaviour, Ahsan noted the inflation process underway has many additional facets, some of which are demand oriented.
In addition, he argued, higher demand for industrial raw materials and commodities in the overheated economies of China and India have had an impact on the Bangladesh CPI.
Mentioning that inflation averaged 7.0 per cent over the past two years, BB governor Salehuddin Ahmed said the tendency of rise in food prices has an impact on the well-being of the less fortunate segment of the society.
The central bank chief pointed out that the monetary policy, being pursued, is aimed at supporting the highest sustainable output growth, while maintaining price stability, adjusting smoothly to the internal and external shocks faced by the economy from time to time.