Editorial
Monetary policy accommodative but cautious
The real test would be to contain inflation
The just-announced monetary policy of Bangladesh Bank for the second half of 2009-2010 fiscal aims to increase investment while keeping inflation in check. The policy for the first half year was essentially no different, but it had to navigate rough waters and thereby left some lessons for implementing the policy for the second half.
The extended policy instrument has been dubbed 'supportive, accommodative and inclusive' as it was supposed to be, since it is a product of a consultative process encompassing all stakeholders such as government, different professional groups, public representatives and trade bodies.
Inflation happens to be a pivotal challenge to efficient macroeconomic management. Even though inflation rate was low in the beginning of the current fiscal, yet it has started rising lately and could increase further. The prices of food and nonfood commodities have been on the rise in the international market. This breeds inflationary expectation in the local market. Due to high price of rice in India and Philippines, two of the major players in world cereal market, a certain measure of import uncertainty might have led to the domestic prices holding firm whereas good aman harvest should have set in a downward trend in the price. Of course, aus crop hasn't come in handy.
The OMS operation in tandem with food for work and VGF will be of some help but the real emphasis should be to raise productivity of boro to underpin food security. A crucial element in the strategy ought to be to make the procurement price remunerative. The need for timely importation and distribution of food can hardly be overstressed.
True, private sector credit flow is on a growth path with reduced government borrowing from the banking system, LC opening for import of capital machinery and industrial raw material shows an upward trend and export is on the mend. Yet, we have a lot more to do to enhance investment confidence in the domestic economy and bolster internal and external demands in the market. Unless massive funds are injected into improving infrastructure including replenishing and steadying gas and electric supplies, the overall investment in the economy, both foreign and local, will not pick up significantly.
Let's say in the end, we are heartened by the fact that the monetary policy demands that the excess liquidity of the banks be used up in SME development including agro-based industries which can diversify our export base.
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