CA suggests BB to prepare proper liquidity management plan
Thursday, 25 September 2008
Shakhawat Hossain
Chief Adviser Fakhruddin Ahmed has asked the Bangladesh Bank (BB) to prepare a 'strong plan' for an efficient liquidity management against the backdrop of higher growth in net domestic asset (NDA) and net foreign asset (NFA), finance ministry officials said Wednesday.
In a recent letter to the BB governor the chief adviser said the NDA of the central bank increased by 38.6 per cent during the period from July 2007 to may 2008.
As commodity prices came down the NFA is already showing an upward trend and expected to rise further in coming months with higher remittance and export growth, he said.
"Liquidity management could prove difficult without proper plans," said the letter signed by Dr. Ahmed.
The country's import payment has gone down by US $531 million in August last due to price fall of commodity items in the international market.
Commodities worth $1.81 billion were imported in August compared to $2.3 billion in the previous month, according to the BB.
The export income until July last witnessed nearly 16 per cent growth while inflow of remittance maintained almost 30 per cent growth until August.
Dr. Ahmed, a former BB governor, said: "This issue is: how would BB manage this potential surge in liquidity expansion? What are the plans?"
Admitting the surge in liquidity a central bank official said they are now preparing the plans on the basis of suggestion and present context of the macroeconomic scenario.
"We are preparing the plan although the task is difficult one due to fast changing economic scenario," said the official on condition of anonymity.
In his letter, Dr Ahmed pointed out that India and Vietnam faced such adverse situation in 2007-08.
Bangladesh, however, did not face such a situation due to higher import payments, external and internal shocks during the period, he said.
"This situation is not going to be repeated, and if the favourable environment continues and after the new government takes over, there may be a pressure for liquidity expansion," he warned.
Bangladesh Institute of Development Studies (BIDS) director Zaid Bakth said proper plans should be there in the wake of new economic development for maintaining liquidity.
"Otherwise, the country will not be benefited from the external price situation," he said.
Bakth said any BB plan should aim at encouraging the industrialists and general people to invest in the productive areas and employment generation.
If the money is not spent in productive sectors it will fuel inflation, he said.
The average general inflation recorded at 9.98 per cent in fiscal 2007-08 due to sharp rise in the prices of commodities such as fuel, rice, wheat, milk powder, and edible oil, according to the Bangladesh Bureau of Statistics (BBS).
Although the point-to-point inflation was down at around 8.0 per cent in May-April period it crossed doubled digit mark again and stood at 10.04 per cent in June and 10.82 per cent in July.
The July inflation was a six-month high, thanks to soaring non-food inflation in urban and rural areas after the government hiked the prices of fuel by 34 per cent to 37 per cent in the domestic market in late June.
Chief Adviser Fakhruddin Ahmed has asked the Bangladesh Bank (BB) to prepare a 'strong plan' for an efficient liquidity management against the backdrop of higher growth in net domestic asset (NDA) and net foreign asset (NFA), finance ministry officials said Wednesday.
In a recent letter to the BB governor the chief adviser said the NDA of the central bank increased by 38.6 per cent during the period from July 2007 to may 2008.
As commodity prices came down the NFA is already showing an upward trend and expected to rise further in coming months with higher remittance and export growth, he said.
"Liquidity management could prove difficult without proper plans," said the letter signed by Dr. Ahmed.
The country's import payment has gone down by US $531 million in August last due to price fall of commodity items in the international market.
Commodities worth $1.81 billion were imported in August compared to $2.3 billion in the previous month, according to the BB.
The export income until July last witnessed nearly 16 per cent growth while inflow of remittance maintained almost 30 per cent growth until August.
Dr. Ahmed, a former BB governor, said: "This issue is: how would BB manage this potential surge in liquidity expansion? What are the plans?"
Admitting the surge in liquidity a central bank official said they are now preparing the plans on the basis of suggestion and present context of the macroeconomic scenario.
"We are preparing the plan although the task is difficult one due to fast changing economic scenario," said the official on condition of anonymity.
In his letter, Dr Ahmed pointed out that India and Vietnam faced such adverse situation in 2007-08.
Bangladesh, however, did not face such a situation due to higher import payments, external and internal shocks during the period, he said.
"This situation is not going to be repeated, and if the favourable environment continues and after the new government takes over, there may be a pressure for liquidity expansion," he warned.
Bangladesh Institute of Development Studies (BIDS) director Zaid Bakth said proper plans should be there in the wake of new economic development for maintaining liquidity.
"Otherwise, the country will not be benefited from the external price situation," he said.
Bakth said any BB plan should aim at encouraging the industrialists and general people to invest in the productive areas and employment generation.
If the money is not spent in productive sectors it will fuel inflation, he said.
The average general inflation recorded at 9.98 per cent in fiscal 2007-08 due to sharp rise in the prices of commodities such as fuel, rice, wheat, milk powder, and edible oil, according to the Bangladesh Bureau of Statistics (BBS).
Although the point-to-point inflation was down at around 8.0 per cent in May-April period it crossed doubled digit mark again and stood at 10.04 per cent in June and 10.82 per cent in July.
The July inflation was a six-month high, thanks to soaring non-food inflation in urban and rural areas after the government hiked the prices of fuel by 34 per cent to 37 per cent in the domestic market in late June.