Upward trend of inflation continues
Thursday, 28 April 2011
FE Report
The upward trend of inflation has continued in the recent months, despite the use of monetary tools by the central bank to rein in prices, officials said Wednesday. "We've used our monetary instruments including cash reserve requirement (CRR) aiming to curb inflationary pressures on the economy," a senior official of the Bangladesh Bank (BB) told the FE. He, however, stated that the inflationary pressures might ease in the coming months due to the arrival of Boro crop, along with the latest policy interventions. The central bank has . increased its policy interest rates by twenty five basis points after over one month, which came into effect Wednesday. Policy interest rates relate to the borrowings by the banks from the BB and vice versa. The interest rate on repurchase agreement (repo) was re-fixed at 6.25 per cent on the day from 6.0 per cent while the reverse repo rate was increased to 4.25 per cent from 4.0 per cent. On March 10 last, the central bank raised the interest rate on repo to 6.0 per cent from 5.50 per cent while the reserve repo interest was re-fixed at 4.0 per cent from 3.50 per cent. The BB's latest move indicates that the central bank is going back to its tighten monetary policy as it would 'discourage' credit flow to the private sector in the near future, some treasury officials of commercial banks observed. Another BB official rejected the private bankers' claim, saying the rate-hike would only discourage credit flow to the non-productive sectors such as purchase of luxury goods, but not the productive ones. Credit flow to the private sector recorded a growth of 28.34 per cent to Tk 702.79 billion in February 2011 on a year-on-year basis, compared to 28.06 per cent or Tk 690.61 billion over that of the previous month, the BB data showed. "We're confident that the rate-hike will not hamper the growth of the productive sectors such as manufacturing, small and medium enterprises (SME) and agriculture," the central bank official said. He also said the rate of inflation moved up continuously due mainly to the increase in prices of food items in both local and global markets. The inflation rate, as measured by the consumer price index (CPI), moved up to 8.36 per cent in March this year from 8.21 per cent in the previous month on an annual average basis. On the other hand, the point-to-point inflation rate rose to 10.49 per cent in March 2011 from 9.79 per cent in February last, according to the Bangladesh Bureau of Statistics (BBS) data. "Such policy interventions do not work immediately but it will involve some time-lag for its expected impact, due to a weak monetary transmission channel in Bangladesh," the BB official said. In India, the policy intervention works promptly because of an improved monetary transmission mechanism there, he added. The market operators, however, said that the BB's latest move would influence the interest rates on both lending and deposit sides of the banks. "No doubt, the move is going to hit the country's banking industry. The credit would be costlier for the entrepreneurs. Some banks and non-banking financial institutions (NBFIs), which have been facing liquidity shortage, may face a new fund problem," a senior treasury official of a leading private commercial bank told the FE. He also said the credit flow to the private sector decreased in March 2011 as most of the commercial banks, particularly those in the private sector, down-scaled their loan operations to bring down their credit-deposit ratio (CDR) to a 'safe' limit by June 30 this year.
The upward trend of inflation has continued in the recent months, despite the use of monetary tools by the central bank to rein in prices, officials said Wednesday. "We've used our monetary instruments including cash reserve requirement (CRR) aiming to curb inflationary pressures on the economy," a senior official of the Bangladesh Bank (BB) told the FE. He, however, stated that the inflationary pressures might ease in the coming months due to the arrival of Boro crop, along with the latest policy interventions. The central bank has . increased its policy interest rates by twenty five basis points after over one month, which came into effect Wednesday. Policy interest rates relate to the borrowings by the banks from the BB and vice versa. The interest rate on repurchase agreement (repo) was re-fixed at 6.25 per cent on the day from 6.0 per cent while the reverse repo rate was increased to 4.25 per cent from 4.0 per cent. On March 10 last, the central bank raised the interest rate on repo to 6.0 per cent from 5.50 per cent while the reserve repo interest was re-fixed at 4.0 per cent from 3.50 per cent. The BB's latest move indicates that the central bank is going back to its tighten monetary policy as it would 'discourage' credit flow to the private sector in the near future, some treasury officials of commercial banks observed. Another BB official rejected the private bankers' claim, saying the rate-hike would only discourage credit flow to the non-productive sectors such as purchase of luxury goods, but not the productive ones. Credit flow to the private sector recorded a growth of 28.34 per cent to Tk 702.79 billion in February 2011 on a year-on-year basis, compared to 28.06 per cent or Tk 690.61 billion over that of the previous month, the BB data showed. "We're confident that the rate-hike will not hamper the growth of the productive sectors such as manufacturing, small and medium enterprises (SME) and agriculture," the central bank official said. He also said the rate of inflation moved up continuously due mainly to the increase in prices of food items in both local and global markets. The inflation rate, as measured by the consumer price index (CPI), moved up to 8.36 per cent in March this year from 8.21 per cent in the previous month on an annual average basis. On the other hand, the point-to-point inflation rate rose to 10.49 per cent in March 2011 from 9.79 per cent in February last, according to the Bangladesh Bureau of Statistics (BBS) data. "Such policy interventions do not work immediately but it will involve some time-lag for its expected impact, due to a weak monetary transmission channel in Bangladesh," the BB official said. In India, the policy intervention works promptly because of an improved monetary transmission mechanism there, he added. The market operators, however, said that the BB's latest move would influence the interest rates on both lending and deposit sides of the banks. "No doubt, the move is going to hit the country's banking industry. The credit would be costlier for the entrepreneurs. Some banks and non-banking financial institutions (NBFIs), which have been facing liquidity shortage, may face a new fund problem," a senior treasury official of a leading private commercial bank told the FE. He also said the credit flow to the private sector decreased in March 2011 as most of the commercial banks, particularly those in the private sector, down-scaled their loan operations to bring down their credit-deposit ratio (CDR) to a 'safe' limit by June 30 this year.