THE monetary policy for last half of the 2015-16 fiscal (January-June) had set a growth rate in the private sector credit flow at 14.8 per cent which finally stood at 16.40 per cent till May. The Central bank official says it may remain stationery or cross 17 per cent in June. This is quite optimistic.
The Bangladesh Bank team predicted an inflation rate of 5.45 per cent in December 2016 which is quite moderate in nature. However, Inflation can be lowered by price cuts on some food items. Already we see that the price of salt has risen to Tk.40-45 per kg. That means consumers will have to spend 60 per cent more money on salt for the year. High prices reduces the purchasing power of the and leave them frustrated.
The repo and reverse repo rates were fixed at 6.75 and 4.75 per cent respectively. The repo rate is the rate at which the central bank lends money to commercial banks, while the reverse repo rate is the rate at which the central bank borrows money from commercial banks. We know that both help control money supply and thus keep inflation under control. The repo rate and reverse repo rate should be revised from time to time and monitored closely. India went through a crisis due to lack of close monitoring where private banks were enjoying benefits and fulfilling their selfish interests.
The Bangladesh Bank team finds an inflation rate of 5.45 per cent in December 2016. This forecast, however, has not incorporated external shocks like rise of militancy around the world. Core inflation that excludes both food and fuel items rose from 6.29 percent in July 2015 to 8.04 per cent in June 2016. Core inflation represents the long run trend in the price level. We can easily predict that core inflation can not come down to 6 per cent as mentioned in the policy. So, the policy is too much optimistic with some goals which are unattainable.
Private investment of last few years reveal it is not influenced by inflation control and interest rate. So, the interest rate as a tool may not work. Agricultural credit will work as the data suggest but agricultural credit is not that much emphasized upon.
The last half-yearly policy had also aimed to achieve GDP growth rate 6.8 per cent and bring down the inflation rate to 6.2 per cent. Bangladesh's GDP (gross domestic product) grew to 7.05 per cent between July and March (nine months) in 2015-16 fiscal. The monetary policy is therefore too optimistic to be implemented.
Sumaiya Akter
East West University
[email protected]
