BB fears rise in inflation due to pay-hike

FE Report
The central bank has expressed the fear that the proposed pay-hike for public servants might trigger inflationary pressure on the economy in the year 2015 that begins tomorrow (Thursday).  
In an update on macro-economic indicators released Tuesday, the bank said the demand-pull impact on the price indices on the domestic market because of output growth might spur the rate of inflation that is now maintaining a low level.
The central bank while presenting the country's economic outlook in 2015 said possible oil-price hike on the international market following political tensions in the Middle East might affect the domestic market.
However, the Bangladesh Bank (BB) has promised to keep these factors in mind while designing the upcoming monetary policy so the targeted 6.5 per cent inflation could be achieved.
The BB issued a press statement Tuesday on its projections saying that the central bank will help boost investment confidence by improving the state of governance in the country's banking industry.
"One of the main targets of the financial sector will be to increase the purchasing power of the lower-and middle-income people," the central bank said about the counter vailing measure to cool the heat generated by the government servants' pay rises.      
It noted that a stagnant situation in terms of investment prevailed in the country in the outgoing year (2014) as a result of political turbulence in 2013.
The last part of 2014, as noticed by BB, marked a new momentum in consumer and business confidence.
The central bank forecast that imports during the financial year (FY) 2015 might grow around 12 per cent. And the recent composition of imports of capital goods, machinery, and other production inputs signals the future empowerment of the economy.
The inflow and outflow of foreign currencies at the bank level are more frequent nowadays than before, suggesting a vibrant import demand for 2015, it said about another indicator of macroeconomic health.
Focusing on a flipside of the economic spectrum, the central bank said, "There remain some aspects of economic discomfort that include non-performing loans, excess liquidity, and some irregularities at the branch level of banking."
In the middle of 2014, the BB witnessed a one-time jump of default loans.
It listed various reasons why so happened, which include new best practice of classification and provisioning rules as well as political instability.
The BB statement reads: "Total default loans are on the wane as a result of improved supervision and close monitoring from the central bank leading to higher level of loan recovery."
In the situation, the Bangladesh Bank may extend some facilities to the credible borrowers now in trouble. But it will "never hesitate to take stern measures against the bad borrowers".
The central bank foresees the economy might grow 6.5-plus per cent if the stimulation in domestic demand that the economy experienced at the fag end of 2014 continued.
It said some opportunities for improving infrastructure and revenue mobilisation still remained.
The BB said remittances started to rise. Remittances, which amounted to $14.2 billion in FY2014, are likely to grow 10 per cent in FY2015.
The foreign currency reserves registered a new record. At present the foreign reserves amount to $22.32 billion-enough to pay the bill for seven months' imports.
Bangladesh Bank has adopted some pragmatic steps in compliance with the inclusive development strategies of the government.
These include inclusive banking, SME loan, green banking, financial-sector modernisation, e-commerce, mobile banking, agri-credit expansion, export promotion, and liberalisation in foreign-exchange transactions.
"As a result, the growth base has been expanded and it is much needed for sustainable development," the statement on economic update reads.
Empowerment of the poor by including the masses is the main mantra of inclusive banking, whose benefits have already begun to manifest in the society.
It said overall employment has also picked up. While poverty has slid down, indicators like life expectancy and real wage have shown a positive trend.
The central bank struck a note of optimism on Bangladesh being able to export rice for the first time in history following self-sufficiency in rice production.
jasimharoon@yahoo.com