Double whammy
Sunday, 15 July 2007
FOR quite sometime, the common people have been complaining about a repressive price situation. No government measure aimed at easing the situation has been successful until now. Even full exemption of duty and intervention in marketing by government agencies are yet to have a positive impact on the prices of most essentials. Now, it seems, the people should get themselves prepared for the worst. Statements of two very important persons-energy adviser Tapan Chowdhury and the central bank governor Dr. Salehuddin Ahmed-- made separately last Thursday would serve as a signal to this effect.
Ahmed made it no secret that the price situation might deteriorate further in the coming months and the central bank had decided to toughen its monetary stance. However, a contractionary monetary policy being pursued for the last couple of years has not much succeeded in delivering the desired results in the task of containing inflationary pressure on the economy. The central bank governor indicated an upward revision of both statutory liquidity ratio (SLR) and cash reserve requirement (CRR) to mop up a part of the sizeable excess liquidity from the country's banking system. This is most likely to lead to an increase in interest rates and consequent squeeze in lending by commercial banks to the private sector. However, the governor suggested the private sector to increase its efficiency and productivity to remain competitive since "money will no longer be cheaper".
There is no denying that in this age of globalisation the private sector operators need to be sufficiently efficient and dynamic to survive a stiff competition. But there are many other factors barring the bank loan that have direct relevance to productivity and efficiency. For instance, uninterrupted power supply is a sine qua non for uninterrupted production in mills and factories. With power supply playing hide and seek 24 hours a day across the country, there remains little scope for any production unit to be efficient and cost-effective. Then again on the issue competitiveness one cannot bypass the efficiency level of the port. Though the situation has improved a bit in recent months, it is still far from being ideal for doing business. These are a few examples and there are many other factors that are impeding normal production process and business operations of scores of private enterprises.
Meanwhile, the energy adviser unveiled last Thursday a government plan to put into effect shortly a simultaneous increase in oil prices and power and gas tariffs. The impact of the changes in the price and tariff lines of these vital factors of production on the general price situation can be anybody's guess. If the council of advisers takes decision to increase the price/tariff of oil, gas and power at this point of time, it would really be a hard one. This has the potential for further destabilising the price situation. If the central bank has designed its tight monetary policy for next six months to help the economy absorb the shock of the government's planned increase in oil and gas prices and power tariff, despite an unsuccessful experimentation with the same for last two years, the premise for such an action is not clear. Rather, a contractionary monetary stance might put increased pressure on price situation, hurt investment and leave a negative impact on the overall growth of the economy. Under the circumstances, the interest of the poor consumers should get the top most priority in any decision-making process of the government.
Ahmed made it no secret that the price situation might deteriorate further in the coming months and the central bank had decided to toughen its monetary stance. However, a contractionary monetary policy being pursued for the last couple of years has not much succeeded in delivering the desired results in the task of containing inflationary pressure on the economy. The central bank governor indicated an upward revision of both statutory liquidity ratio (SLR) and cash reserve requirement (CRR) to mop up a part of the sizeable excess liquidity from the country's banking system. This is most likely to lead to an increase in interest rates and consequent squeeze in lending by commercial banks to the private sector. However, the governor suggested the private sector to increase its efficiency and productivity to remain competitive since "money will no longer be cheaper".
There is no denying that in this age of globalisation the private sector operators need to be sufficiently efficient and dynamic to survive a stiff competition. But there are many other factors barring the bank loan that have direct relevance to productivity and efficiency. For instance, uninterrupted power supply is a sine qua non for uninterrupted production in mills and factories. With power supply playing hide and seek 24 hours a day across the country, there remains little scope for any production unit to be efficient and cost-effective. Then again on the issue competitiveness one cannot bypass the efficiency level of the port. Though the situation has improved a bit in recent months, it is still far from being ideal for doing business. These are a few examples and there are many other factors that are impeding normal production process and business operations of scores of private enterprises.
Meanwhile, the energy adviser unveiled last Thursday a government plan to put into effect shortly a simultaneous increase in oil prices and power and gas tariffs. The impact of the changes in the price and tariff lines of these vital factors of production on the general price situation can be anybody's guess. If the council of advisers takes decision to increase the price/tariff of oil, gas and power at this point of time, it would really be a hard one. This has the potential for further destabilising the price situation. If the central bank has designed its tight monetary policy for next six months to help the economy absorb the shock of the government's planned increase in oil and gas prices and power tariff, despite an unsuccessful experimentation with the same for last two years, the premise for such an action is not clear. Rather, a contractionary monetary stance might put increased pressure on price situation, hurt investment and leave a negative impact on the overall growth of the economy. Under the circumstances, the interest of the poor consumers should get the top most priority in any decision-making process of the government.