The New Nation - Internet Edition

Pulack Ghtack

Bangladesh Bank (BB) is in dilemma to adopt its monetary policy absorbing multifarious economic pressures and accommodating the expansionary fiscal policy of the Government.

The central bank needs to tighten its monetary stance to accommodate the expansionary budgetary measures of the government, which would result in squeezing the private sector credit.

If the central bank adopts expansionary monetary measures it would lessen the value of taka in the commodity market and push the already soaring inflation up.

In this position, the bank will set forward a "blend of policy," in the monetary policy statement (MPS) for the first half of the 2008-09 fiscal year, that would enable credit growth and at the same time keeping a close watch on the money supply so it does not put pressure on inflation, highly placed sources in the BB said.

The MPS is expected to be announced Sunday, which will be pursued during the first half of the current fiscal year, to the end of next December.

"The efforts would be directed at gearing up economic activities by encouraging adequate credit flows to all productive sectors," an economist of the BB said.

The bank has been facing several key challenges like strong inflationary pressure from both domestic and external sources, a low level of investment and a slump in overall economic activity.

Annual inflation rate hit a 17-year high of 11.21 percent in November, because of a jump in food prices, official data showed.

However, according to data released by Bangladesh Bureau of Statistics, point-to-point inflation reduced from 11.6 per cent in December 2007 to some 7 per cent in May 2008.

Bangladesh Bank will keep maintaining growth in the private sector credit by any means to help people face the inflationary pressure through creating employments, Governor Dr Salehuddin Ahmed said at a function Monday.

He declared the central bank's stance against contractionary monetary policy as a strategy to maintain macroeconomic stability as well as growth.

"The major target is to contain inflation through a pragmatic policy, which you can call it a kind of hybrid policy," he said.

Dr Ahmed said the country's economy was facing a number of challenges in keeping the price level at a tolerable limit, but sees a positive prospect in the future through consolidating reforms, taking further actions to create an enabling environment for business and economic activities.