BB warns of prolonged monetary tightening, concedes inflation a risk

The Bangladesh Bank (BB) has warned that it may need to keep tightening monetary policies, almost three days after the lending rate hit over 13.50%, while conceding that over 9% inflation over the past months poses a concern for the economy.

The central bank made the observations in a quarterly update published Wednesday.

Consumer inflation averaged 9.6% until February, and central bank efforts to tame the price growth with interest rate hikes every month led to a marginal growth in private sector credit flow that month.

Persistently high inflation has eroded consumer purchasing power, crimped business profits and consequent interest rate hikes have shrunk credit supply for businesses.

The central bank has set a private credit growth target of 10% for the January-June period, but progress towards the goal was dismal in February with just 0.01% additional monthly growth from January, according to the most recent available data. The month-on-month credit growth in January was 9.95%, and 9.96% in February.

On Tuesday, the World Bank said that inflation in Bangladesh might stay elevated at 9.6% in the fiscal year ending 30 June before slowing to 8.6% in the next fiscal year.

However, the inflation trajectory is contingent on monetary and fiscal policies adopted by state bodies, it added.

Inflation has been high amid geopolitical tensions and slowing imports by Bangladesh’s trading partners. However, the situation has been particularly aggravated by rampant hoarding and price manipulation by some vested parties within the country.

The central bank is all set to continue monetary tightening until July to try to bring inflation down to desired level.

The Bangladesh Bank said that in collaboration with the government, it is constantly calibrating efforts to combat inflation.

"Bangladesh Bank maintained its restrictive monetary stance and adopted a unified exchange rate policy to manage inflationary pressure. The government is also taking steps to remove supply constraints by addressing issues such as syndication, hoarding, and other unethical practices," the central bank said in its report for the October-December quarter.

However, price rises have continued since December, as has the growth in interest rates.