London-based Economist Intelligence Unit (EIU) expects the key lending rate in Bangladesh would average at 15 percent in 2008 as compared to 16 percent in 2007, reports UNB.

In its April report on Bangladesh, the EIU said Bangladesh Bank is expected to maintain an accommodative monetary policy stance during the early part of the forecast period, despite persistent inflationary pressures.

“It would continue to ignore calls from the IMF to raise interest rates and is unlikely to tighten policy over the short term,” said the report, adding that although mounting inflationary pressures remain a major concern, BB is expected to stress that “economic growth is also a priority.”

EIU is a specialist publisher serving companies managing operations across national borders. For 60 years, it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. EIU has estimated that the consumer price inflation in Bangladesh would average 8.9 percent in 2008, after recording an average of 9.1 percent in 2007.

“The inflation rate slowed slightly to 11.4 percent year-on-year in January from a nine-year high of 11.6 percent in December 2007,” it said. The report expected that the budget deficit in fiscal year 2007-08 to rise to the equivalent of 5 percent of GDP compared with the official target of 4.7 percent.

GDP is expected to grow by 5.7 percent in 2007-08 and by 6.2 percent in 2008-09. The trade deficit is likely to swell to record levels as demand for industrial raw materials strengthens and international oil prices stay high.

Strong inflows of workers’ remittances resulted in a small current-account surplus in July-December 2007. The report said the fiscal policy would remain expansionary over the forecast period.

Liberalisation of the banking sector is expected to continue in 2008-09, although progress is likely to be slowed following the government’s decision in March to cancel the sale of a stake in one of the four nationalised commercial banks to Prince Bandar of Saudi Arabia.

“The most pressing task for the current administration is to rein in consumer price inflation. A shortage of food and high global prices for food staples such as rice and wheat have made these items too expensive for many Bangladeshis,” said the report.

Despite the measures outlined in the 2007-08 budget to boost collection, revenue is expected to remain low as a proportion of GDP during the forecast period. Spending, in contrast, is set to increase, as the interim administration makes changes to the electoral process and continues to subsidise fuel.

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