Muhith fears reserve may spur inflation
Tuesday, 17 November 2009

Finance minister AMA Muhith called for precautionary measures in the wake of a soaring foreign exchange reserve fearing it might trigger inflation.

AMA Muhith urged the central bank to take necessary steps.

AMA Muhith was speaking at a programme hosted by Bangladesh Bank on Monday to celebrate Bangladesh's forex reserve topping the $10 billion mark this month.

Muhith said, "It is a really glorious event that our reserve fund hit an all-time high of $10 billion breaking all previous records."

But, he said, as finance minister he had to urge caution.

Sudden growth and release of reserve funds could lead to inflation, he said. "It is a matter of concern for the economy."

Muhith said, "We had no forex reserve at all just after independence and so were denied IMF membership which required $52 million as a subscription fee."

Bangladesh was able to apply for IMF membership only with Canada's assistance, he said.

Muhith said, "It is very good news for a country like ours to see the reserve crossing $10 billion."

Bangladesh's forex reserve crossed the $10 billion mark for the first time on Nov 11, on recession-defying remittance inflows and falling import costs.

The reserve has more than doubled since June 2007, when it stood at $5 billion. It crossed $7.47 billion in June this year and topped $9 billion in October.

The finance minister said he also expected foreign direct investment to gain momentum soon.

However a "mindset problem" remains, he said.

Muhith urged all, including businessmen and political leaders, to alter their mindset to woo more foreign investment into the country.

"Many of us are prejudiced against foreign investment on the plea that the profits go out of the country," he said.

"This is not right at all because foreign investment will generate more employment pushing the economy forward," he said

"We must accept that foreign investors will naturally remit their own profit back to their home countries," he said.

The programme was also addressed among others by central bank chief Atiur Rahman and chairman of Bangladesh Association of Bankers Nazrul Isalm Majumder.

Rahman said the healthy reserves, on the back of high remittance inflow, would help Bangladesh bargain for donor aid through legal channels.

Regarding the impact of high remittance and reserve on commodity prices, he said the next monetary policy of the central bank would take measures to counter inflationary pressures.


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