The New Nation - Internet Edition

Pulack Ghatack

People's misery is mounting amidst continuous increase of inflationary pressure on their household economy. Urban people, mostly the lower and fixed income groups, are suffering the most, as inflation is impacting more in urban areas (9.1 per cent in December 2009) than in rural areas (8.3 per cent), official statistics show.

Inflationary pressure has become a mater of concern for the government and Finance Minister AMA Muhith categorically said at a function on Thursday that he was worried over the trend.

Bangladesh Bank (BB) is finding it difficult to bring inflation under control despite measures to tighten money supply.

The central bank has withdrawn as much as Tk 15,000 crore from the market using different tools like auction of Reverse Repo, Bangladesh Bank bills and Treasury bills.

A total of Tk 6,033 core has been withdrawn through auction of Reverse Repo during nine days from March 1 to March 10, sources in the BB said.

The market regulator moreover has taken out Tk 800 crore through auction of Treasury bills (Tk 500 crore) and Bangladesh Bank bills (Tk 300 crore) last week.

Release of money in the banking system through auction of Repo is also remaining suspended for one month. The central bank did not make any Repo auction since February 16. Banks got Tk 203.50 crore through Repo on February 15 this year. At least Tk 640 crore was also withdrawn through Reverse Repo on that day.

Despite these measures, money supply in the market is growing continuously coupled with inflation, as the amount of injecting money is still more than the rate of withdrawal, it is learnt

An official of the Bangladesh Bank said that they are playing twin tools- injecting huge money by purchasing foreign currencies to control the foreign exchange market in one hand and withdrawing a sum through Treasury bills and Reverse Repo in another hand.

The central bank purchased some 660 lakh dollars in one week to maintain stability in the forex market and thus injected some Tk 4,600 crore in the market, sources said.

During the last one month over Tk 19,000 crore entered the market afresh, as the regulator had to purchase dollars to keep prices of Taka steady against dollar.

Executive Director of the Centre for Policy Dialogue Prof Mustafizur Rahman supports the central bank's recent bid to tighten money supply in the unproductive sectors, which he thinks was necessary to curb inflation.

"Bangladesh Bank's effort to curb credit expansion in the non-productive sectors was necessary in view of the inflationary trend," he told The New Nation yesterday.

"There is a tendency of increasing food inflation. But because of the low base last year, the increased amount looks big this year," he said.

The overall inflation rate on a point-to-point basis in December last year reached 8.51 per cent, and in the urban area food inflation reached double digit after 14 months mainly due to increasing price of rice.

Both food and non-food inflation contributed to the inflation spike while food inflation jumped to 9.5 per cent in December 2009 from 0.3 per cent in June and non-food inflation rose to 7.0 per cent from 5.9 per cent

Lower crop production and the rising prices of rice and other commodities, including oil, in the international market contributed to the recent price escalation, it added.

Food inflation stood at 9.50 per cent in December compared to 7.84 per cent in November. Non-food inflation rose to 7.04 per cent in December, which was 6.44 per cent in November.

After the Awami League-led alliance came to power in January last year, overall inflation rate fell every month till June when it came down to two per cent on a point-to-point basis.

But from July, inflation continued to increase every month. A Bangladesh Bank official said inflation has been going up in the recent times primarily due to price hike of rice.

In the urban area, food inflation reached 11.08 per cent in December last year. In September 2008, the inflation rate was 11.93 per cent, which fell down to 8.59 per cent in October.