Prices unlikely to come down in 2008, says BB governor

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Bangladesh Bank (BB) would focus on keeping the prices of essentials in the New Year 2008 at a level commensurate with the commoners' income, particularly with that of the rural people, report agencies.
"The extent of inflation is higher than the income growth. Our efforts will be to balance the gap," BB Governor Salehuddin Ahmed said Monday, the last day of 2007, looking forward to the economic challenges the country would face in the coming year.
He said the rural people were suffering from the rising inflation with erosion in their income and increase in the prices of agricultural inputs like irrigation and fertiliser.
The governor hardly sees any prospect for the prices of essentials to come down in the near future, but said the rate of inflation would get stabilised to some extent next year while it would decline on long-term expectation.
He observed that the Aman harvest have had no impact on the prices, but was expecting the impact after the next boro harvest.
"We'll have to increase domestic production as well to ensure enough supply of commodities," he said, adding that the BB has been encouraging commercial banks to support food imports to ensure adequate supply.
The central bank governor was talking to reporters at his office taking stock of the country's economic situation during the outgoing year (2007) as well as the economic outlook for the New Year 2008.
The central bank would critically look at the balance of payment situation threatened by the increased import pressure despite having a comfortable foreign exchange reserve that stood at around $5.5 billion at the end of the year.
The BB would also strengthen its efforts to bring more discipline in the financial sector, capitalising on the recent amendments to the Banking Companies Act.
Looking back, the BB governor said the country's economy witnessed a mixed performance during the outgoing year, while the economy achieved the projected growth rate of 6.5 percent despite the spiralling prices of essentials and fuel oil on the international market, consecutive two floods, cyclone 'Sidr' and anti-graft drive.
"The balance tilted towards the challenge side, however. Our efforts will be to overcome the challenges and regain better economic situation in the next year," he said.
He said inflation, though went a bit beyond the projection of 7.0 per cent, and the business activities have been satisfactory until the first half of the year. Business activities, however, declined to some extent from July onwards in the outgoing year.
The foreign exchange market has been better with almost no volatility, the taka got appreciated to some extent, remittance increased by about 25 per cent to around $6.0 billion and it remained steady, he added.
Salehuddin said the forex reserve stood at around $5.5 billion at the end of the year, which would hover over $5.0 billion even after the bimonthly payment of Asian Clearing Union (ACU) next month.
The banking sector has been strengthened further with enhanced capital base and banks' board of directors are poised to retire after completing their tenure as per the guidelines to ensure better governance and management.
The banking sector discipline would be strengthened further in the next year, as the commercial banks will have to comply with the laws amended recently, said the BB governor.
Growth in banking credits, however, declined compared to the growth in bank deposit, 79-80 per cent, as the business confidence somewhat shattered during the year, he said. The BB was trying to increase the credit growth, particularly in the agriculture and SMEs sectors.
The governor expected credit growth during the next year, as the central bank has already made an effort to give agriculture credit while it was planning to hold meetings with the commercial banks to increase credit to SMEs sector.
He was also expecting some investment in large-scale infrastructure projects like gas and power sector next year that would also increase the credit growth.
He also sees good sign in the financial market as the desired secondary market for bonds has already developed to some extent and, at the same time, the capital market has been bullish during the last year. The central bank was also trying to encourage banks and financial institutions to go to the capital market.
The governor said the balance of payment (BoP) situation has been better so far, but expressed concern over the possible impact in the near future due to the rising import costs. He said the central bank has already started assessing the real situation in this regard to take necessary precautionary measures.