BIDS finds mismatch in monetary policy

Finance Minister AMA Muhith speaks at a seminar on the state of the economy at Dhaka Sheraton Hotel yesterday. Bangladesh Institute of Development Studies organised the programme where the organisation's Director General Mustafa K Mujeri and lawmaker Mohiuddin Khan Alamgir also spoke.Photo: STAR

Bangladesh Institute of Development Studies (BIDS) yesterday termed the monetary policy of the central bank contradictory, saying it is increasing the supply of liquid money while withdrawing it from the system by raising the cash reserve ratio for banks at the same time.
As a result, the interest rate has gone up, slowing industrial growth, said Nazneen Ahmed, senior research fellow of BIDS, at a seminar on the state of the economy at Dhaka Sheraton Hotel.
Nazneen said money supply has grown 22 percent, exceeding the central bank's 17 percent target. She said a rise in money supply influences consumer demand and inflation.
Finance Minister AMA Muhith who was present at the programme said he would look into the issue.
Lawmaker Mohiuddin Khan Alamgir and BIDS Director General Mustafa K Mujeri also spoke.
BIDS, an autonomous research organisation, said the economy is doing well on different fronts such as agriculture and exports. But there are challenges to deal with: inflation, balance of payments and exchange rates, infrastructure and implementation of annual development programme.
BIDS focused on the contradictions of monetary policy at a time when inflation led by a food price spike rose to 9.04 percent in January from 8.28 percent in the previous month.
High prices of foods on the global market mainly contributed to the inflation, while an increase in money supply is partly responsible for a rise in consumer prices.
To curb the money supply and demand-led inflation, Bangladesh Bank had earlier increased the cash-reserve ratio for banks.
“Industrial growth was higher in the past one year because the interest rate had been lower. But the rise in the interest rate due to tightening will discourage investments and raise cost of imports,” she said.
Muhith said it is not easy to curb the price hike. “When I was not in government I thought there was a syndicate that could be controlled. But when I am in government, I find it hard to control,” he said.
The minister said the government cannot control prices of all commodities but has targeted four essential commodities -- rice, flour, sugar and edible oil -- to curb prices through fair price cards and rationing. “That's what India does to ensure fair prices. We should also do that.”
Focusing on the budget, Lawmaker Mohiuddin Khan Alamgir said the share of development budget should be increased in the overall budget to create productive capacity of the economy.
“During the period of Bangabandhu [Sheikh Mujibur Rahman] the share of development budget was 66 percent. Now it is less than a third of the total budget,” he said.
Alamgir favoured a discussion in parliament about the allocation for the defence sector in the budget.
Referring to the stockmarket, Alamgir said the government should not offload shares of state companies to support the share market.
Alamgir said the stockmarket should not be controlled too much. “We should proceed with caution,” said the lawmaker, pointing to market reforms.