Editorial
Tighter monetary policy, utility price hikes
Avoidable shocks to the economy
Two statements, one made by Governor, Bangladesh Bank Dr Salehuddin Ahmed and the other by Energy Adviser Tapan Chowdhury late last week, created a stir of sorts. CPD took issue on the tighter monetary policy unveiled by BB Governor to mop up extra liquidity of the banks which, we think, would curb their loan disbursing capacity to the private sector. The think-tank said the move would be counter-productive on inflation, raise the rate of interest and could affect investment and productivity. Reacting to the CPD criticism, the finance adviser referred to the BPC's indebtedness and alluded to a deficit that had to be met. The BB governor has asserted that the policy aims at promoting growth and employment. The government's aim is to keep the inflation rate between 6.5 and 7 percent. The inflationary pressure has been on the rise not so much because of the higher demands as owing to supply side weaknesses together with increase in government expenditure. The government has, of course, tried to improve the supply side by recourse to duty exemptions and intervention in marketing through its agencies. The fact that these steps have not paid the desired dividends goes to highlight the vestigial tyranny of syndicated manipulations and essential commodities changing too many hands of middlemen before reaching the buyer. Certain administration of shocks to the market, even if unwittingly, had made the suppliers shy, too. In defense of the contractionary policy, the central bank governor stressed the need for the private sector to increase its efficiency and competitiveness in a globalised context. But apart from bank credit, we need to ensure uninterrupted power supply and efficiency at the port level to enhance competitiveness of the enterprises. In our volatile price situation, one is at a loss to understand the rationale for the government's plan go for simultaneous increases in oil price and power and gas tariffs which are bound to raise the cost of production, trigger a series of essential price hikes and multiply the hardship of the common consumers. If the ostensible purpose behind adopting a contractionary monetary policy is to keep the rate of inflation in check then it is obviously cancelled out by the increase planned in the price or tariff of oil, gas and power. The answer lies in keeping down government expenditure and borrowing. We suggest the council of advisers rethink the position on the question of raising the utility prices and make sure the monetary policy is friendly to the growth of private sector.
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