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'Inflation may drive economy into rough patch' PDF Print E-mail
Wednesday, 16 July 2008

Staff Correspondent

The International Monetary Fund said Tuesday Bangladesh must speed up efforts to check inflationary pressure stemming from high global prices and domestic demand.

"An initial increase in inflation is inevitable, but there is a role of domestic policy in preventing second-round effects where inflationary pressure spill over into wages and general prices," the IMF said in a statement.
An IMF delegation led by Thomas Rumbaugh, adviser in the Fund's Asia and Pacific Department, visited Bangladesh from July 2-15 to conduct an annual consultation.
The team met with chief adviser Fakhruddin Ahmed, finance adviser AB Mirza Azizul Islam, Bangladesh Bank governor Salehuddin Ahmed, NBR chairman Abdul Mazid and other government officials.
In a press conference at Bangladesh Bank Tuesday, the IMF said Bangladesh's macroeconomic policy helped increase loan outflows into the private sector and currency supply by 20 percent in fiscal 2007-2008.
On whether the IMF suggested that Bangladesh Bank adopt "contractionary" monetary policy, Rumbaugh did not give any direct reply.
Inflation is a big challenge for Bangladesh and other countries around the world, Rumbaugh said.
Escalating international food and fuel price drove up inflation, which averaged almost 10 percent over the year, putting increased pressure on the livelihoods of the poor, who suffer the most from inflation, the IMF said.
There is no possibility of a fall in the prices of food and oil on the international market, Rumbaugh said. The inflation of Bangladesh is largely import-driven, which means inflation in Bangladesh is increasing due to the hike in the prices of import commodities.
A Bangladesh Bank official, preferring anonymity, said the central bank governor would announce monetary policy for July-December on Thursday.
According to the latest data of Bangladesh Bureau of Statistics, the rate of inflation in May was 7.44 percent on a point-to-point basis, down from 7.66 percent in April. Inflation exceeded 10 percent from October last year to January this year.
BB governor Salehuddin Ahmed had earlier said that the central bank would make monetary policy on its own, not under pressure from the IMF.
After the meeting with the team, the finance adviser had earlier told reporters that the IMF had suggested "contractionary" monetary policy.
"But we will design the policy considering the overall condition of the country," he said.
The IMF said Bangladesh's macroeconomic performance was resilient in a year of multiple natural disasters and high international food and fuel prices.
"A strong pick up in domestic economic activity in the second half of the year and rapid growth in garments exports and remittances enabled growth in 2008 to exceed 6 percent," Rumbaugh said.
"The current environment is very challenging for macroeconomic management."
"Potential political uncertainty surrounding the local and national elections is a short-term risk while dealing with climate change is a huge long-term challenge," he added.

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