The New Nation - Internet Edition

BSS, Dhaka

The inflation rate in most of the developed and developing countries across the globe has shown upward trend during the recent months.

The inflation was 2.8 percent in the United States and 2.1 percent in the Euro area in September 2007 compared 2.7 percent and 1.9 percent respectively in June 2007.

This was reflected in the just released Monetary Policy Stance (MPS) of the Bangladesh Bank.

Among the Asian countries, consumer price inflation in China, Thailand, and Indonesia increased by 6.2 percent, 2.1 percent, and 7.0 percent respectively in September 2007 from 4.5 percent, 2.0 percent, and 6.3 percent in June 2007. The consumer price inflation in India stood at 6.6 percent in October 2007 compared 5.7 percent in June 2007. The inflation rate (on point-to-point basis) in Pakistan and Sri Lanka also went up by 9.3 percent and 19.6 percent respectively in October 2007 from 7.0 percent and 13.0 percent in June 2007.

The central bank of Bangladesh in its recent MPS projected an annual average CPI inflation within the range of 8.0 percent and 8.2 percent for FY 08. Previously, it its MPS in June 2007, the central Bank projected an average CPI inflation ranging from 6.5 percent to 7.0 percent for FY 08, while the average CPI inflation was 7.2 percent during FY 07.

After achieving a robust growth of 5.4 percent in 2006, the global economy is likely to show a lower growth and is projected to grow by 5.2 percent in 2007 and 4.8 percent in 2008. On the other hand, the developing world is likely to grow by 8.1 percent in 2007 and 7.4 percent in 2008.

The higher oil prices, volatile exchange rates in the major economies, higher global food inflation, dullness in the housing market in major economies especially in the US, significant pressure on global inflation, and a slower growth outlook for Japan and the Euro areas are major reasons.

Prior to the recent turbulences, central banks around the world were generally moving towards tight monetary policy to face the challenge of maintaining non- inflationary growth.

However, in view of the potential adverse impact of tightened credit condition in restraining economic growth, the Federal Reserve Bank of the US reduced the federal fund rate while the Bank of Japan and European Central Bank kept their policy rates unchanged at early 2007 levels.

On the other hand, the Bank of England continued to follow the tightening policy. The reaction among the emerging market economies was mixed; while some central banks eased the monetary policy, others tightened it further.