Bloomberg News

Bangladesh to Further Curb Credit, Stepping Up Inflation Fight

January 26, 2012

Jan. 27 (Bloomberg) -- Bangladesh pledged to further curb credit growth as it stepped up the fight against an inflation rate that has exceeded 10 percent each month since March.

Bangladesh Bank will “pursue a restrained monetary growth path in order to curb inflationary and external sector pressures,” it said yesterday in a statement giving the policy stance for the six months through June. The target for credit expansion among companies and individuals is 16 percent, it said, compared with 18 percent earlier.

Bangladesh raised interest rates for the second time in four months on Jan. 5, contrasting with moves to ease monetary policy in nations from India to Thailand as Europe’s debt crisis hurts global expansion. The taka’s 16 percent slide against the dollar in the past year is Asia’s second-worst, spurred by concern growth may slow and as political risks cloud the outlook.

“The economy is going through a difficult time,” Ahsan H. Mansur, executive director of the Dhaka-based Policy Research Institute, said before the release. “For now, it is not possible to bring inflation to single digits.”

Consumer prices, stoked by costlier food, rose 10.63 percent in December from a year earlier, eroding purchasing power in a country where the Asian Development Bank estimates about half the population lives on less than $1.25 a day.

“The fact that non-food inflation is still steadily increasing -- partly due to energy and petroleum price adjustments -- suggests that the focus on curbing inflation to single digit levels needs to continue,” the central bank said.

The government has forecast 7.5 percent average inflation for the current fiscal year.

Electricity Prices

A climb in electricity prices threatens to fan price pressures. Tariffs are due to be increased 7.1 percent from Feb. 1 following a 13.2 percent rise last month.

The taka was little changed at 84.400 per dollar yesterday. The Dhaka Stock Exchange’s benchmark General index, which is down 38 percent in the past year, closed 1.7 percent lower.

Bangladesh Bank raised the repurchase rate to 7.75 percent from 7.25 percent and the reverse repurchase rate by a half a percentage point to 5.75 percent earlier this month. September’s inflation reading of 11.97 percent was the highest since December 1998, according to data compiled by Bloomberg.

The $106 billion economy may expand 6.5 percent to 7 percent in the fiscal year ending June, the central bank said. Gross domestic product rose 6.7 percent in 2010-2011.

The forecast takes into account risks to export and remittance growth, as well as moderating aid inflows and credit expansion, Bangladesh Bank said, adding it will seek to ensure “adequate private sector credit to stimulate inclusive growth.”

The trade deficit is set to widen to $9.03 billion in the year through June, from $7.3 billion in 2010-2011, according to the central bank. Foreign-exchange reserves fell to $9.2 billion from $10.1 billion in the 12 months to mid-January, it said.

Bangladesh’s army foiled an attempt to oust Prime Minister Sheikh Hasina Wajed’s government, the army said Jan. 19. The nation has had three major army coups and two dozen smaller rebellions since independence from Pakistan in 1971.

--Editors: Sunil Jagtiani, Rina Chandran

To contact the reporters on this story: Arun Devnath in Mumbai at adevnath@bloomberg.net; Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Arijit Ghosh at aghosh@bloomberg.net


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