The New Nation - Internet Edition

Staff Reporter

Economists have welcomed the expansionary monetary policy of Bangladesh Bank saying, this will help boost economic growth and employment generation.

They said that the central bank was wise to ignore the suggestions of the International Monetary Fund (IMF), which prescribed tight money supply to curb inflation.

While talking to the New Nation eminent economists Prof Muzaffer Ahmed, Dr Atiur Rahman and former deputy governor of Bangladesh Bank Khondokar Ibrahim Khalid praised the central bank decision.

They stressed the importance of increasing credit flow for productive purpose and employment creation which would make people able to tolerate inflation.

The measure for tightening money supply to tame inflation would not be effective in Bangladesh perspective they said.

The economists said inflation here is less demand-driven than supply and the fear is that a crunch in credit might hamper the supply of goods and consequently fuel the inflation.

"Velocity of money circulation is not high in Bangladesh. So the experiences in other countries would not be applicable to Bangladesh," said Prof Muzaffer Ahmad.

He said, "If the Bangladesh Bank followed the IMF suggestions, it could hamper productivity and employment generation."

Prof Muzaffer said "The traditional system pursuing contractionary monetary policy against an expansionary fiscal policy will also not be effective here. Because, Bangladeshi inflation is not the result of excess money supply. Rather inflation is soaring here due to short supply of necessary goods. So production should be increased. Government measures should help employment generation."

Prof Muzaffer said, controlling monetary expansion became a bit necessary due to budgetary measures of the government which was expansionary. But this traditional method of controlling would not work here.

"Monetary expansion is necessary to accommodate the private sector," he added.

Prof Mozaffer said, "Inflation is everywhere in the world. We should adopt pragmatic policy to adjust to it. Credit supply should be ensured for productive purpose and growth of remittance."

Dr Atiur Rahman hailed the monetary policy terming it as "cautionary expansionary". "The central bank will not be able to contain the inflation. However, it is trying to make the inflation tolerable," he said.

He said, the Bangladesh Bank's policy enshrined long-term prospects. To face the immediate challenges specific programme is necessary. The Government should do it. Open Market Sale (OMS) should be re-introduced immediately to protect the poor.

"Good supply is more urgent than money supply, which is the task of the Government," said the economist.

The Government should reduce day-to-day expenditures and increase expenditure on service and good supply, he suggested adding, the government should increase revenue collection and reduce bank borrowing.

Dr Atiur, however, suggested the Bangladesh Bank to cautiously monitor the money supply situation.

Noted monetary policy analyst Khondokar Ibrahim Khaled said that pursuing the policy of IMF would not be suitable in the present situation.

"This inflation is due mainly to lack of investment. Monetary contraction is not its remedy. The IMF prescriptions could contribute in stopping production," he said.

He termed the Bangladesh Bank's decision as "practical and wise" and said, IMF's policy would lead the nation towards economic stagnation."

Bangladesh Bank on Thursday announced its half yearly monetary policy giving priority to economic growth rather than to the immediate challenge of taming inflation.

While announcing, the policy, Governor Dr Salahuddin Ahmed said, "The policy targets a real GDP growth rate of 6.5 per cent and an average inflation rate of around 9.0 per cent in FY09."

He said, "for supporting growth promoting policies, the policy stance would give priority to unhindered flow of private sector credit to the economy's productive sectors."

"The domestic economy, despite its potential, operates below its capacity which needs to be realised to achieve short-term stability and brighten long-term growth prospects," Bangladesh Bank observed.