The New Nation - Internet Edition

Staff Reporter

Renowned economists of the country including the Governor of Bangladesh Bank, at a seminar yesterday, identified a number of reasons behind inflation, which may accelerate further and lead the nation towards economic stagflation.

Some of the economists explained that excess prices of foreign currencies, especially of Indian Rupee, against Taka pushed prices of many imported items up accelerating inflation.

Bangladesh Bank could influence the forex market, without hoarding a huge foreign currency in its locker. A buffer stock of goods could be made to cope with any possible crisis, some of the economists opined.

But, Governor Dr Salehuddin Ahmed turned down the suggestion, saying that he needs to pursue a "pragmatic and cautious policy" in maintaining reserve so that any abrupt shock in future does not jeopardise the economy.

"If we release some amount from the reserve at this moment, there're some risks … It can cause a massive disaster to the economy," he said, adding that it's very difficult to assess the exact impact of depreciation of Tk on the economy. "It can have a reverse impact too."

Prof SR Osmani of University of Ulster, UK, and visiting Professor of BRAC University presented the keynote paper on 'Interpreting Recent Inflationary Trends in Bangladesh and Policy Options' at the seminar organised by Centre for Policy Dialogue (CPD) at the BRAC Centre Inn Auditorium in the city. Professor Rehman Sobhan chaired it

Analysing last 5-year's inflationary trends he said that rising external prices of food is a plausible explanation of inflation, but not a complete one.

"A couple of policy variables have played important roles in accelerating inflation," he said arguing, "First, an accommodating monetary policy has helped to translate a change in relative price into generalised inflation; Second, the exchange rate policy of allowing Taka to depreciate has exacerbated the inflationary pressure."

Price rise of goods in the international market, depreciation of Taka, expansion of some monetary aggregates, fiscal expansion, inappropriate suggestions of IMF, siphoning off currency, political instability, anti-corruption drive of the Caretaker Government, disruption in marketing channel, supply shortage, unethical hoarding of goods, price syndication by corrupt businessmen, less production of food grains and the recent floods were identified by the experts as short term or long term reasons of painful race of inflation.

Professor Rehman Sobhan said that innflation has emerged as a national problem and it should be addressed nationally. Bangladesh Bank alone will not be able to tackle it, for it has not all the tools to deal with it

Real economy and fiscal measures are integral part of it So, all the policy makers including the Finance Adviser should work with it in coordination.

Addressing the central bank governor the seasoned economist said, "You will not be able to tackle inflation just following the suggestions of IMF. You have not enough tools to curb it alone. Take into consideration what the Bangladeshi experts say."

Turning to suggestions for fighting inflation, Prof Wahiduddin Mahmud stressed the need for giving more concentration on cereal production due to recent phenomenon of diversification of farm products on expectation of more prices.

He suggested variable duty rate on import of essential items in a manner when local production will be increased, higher import duty should be imposed and when prices on the international market will appreciate and import duty should be reduced.

Prof Mahmud also suggested developing buffer stock to avert sudden short supply of food.

Former Bangladesh Bank Governor Dr Farashuddin Ahmed echoed the suggestion of increasing local production and making food stock as he experienced beter results during his tenure as Governor when forex reserve plunged as low as US$ 1.3 billion.

Former Finance Minister M Sayeduzzaman said he does not feel the reserve is comfortable as only one shock of energy price or food price could deplete the forex reserve position.

Economist Dr Atiur Rahman stressed the need for looking beyond whether there are cases of stocking dollars or there is any massive capital flight taking place due to political reasons.

The Bangladesh Bank Governor Dr Salehuddin, however, explained that the relation between the exchange rate and inflation is very insignificant in the economy. "Exchange rate manipulation is not really the way of achieving macroeconomic target (inflation)."

He said the major challenge of the economy is not to let the inflation rise further through increasing supply in a situation when the economy is facing a kind of slowdown, if not stagflation yet

Dr Mujeri, Dr Morshed, and former lawmaker GM Kader also took part in the discussion.