BB sharply hikes policy rate by 75 basis points to tame inflation
Staff Reporter :
Bangladesh Bank (BB) raised the policy rate by 75 basis points to 7.25 per cent yesterday as part of an aim to tame the skyrocketing inflation by making money costlier.
Earlier in June this year, the Bangladesh Bank had increased the policy rate from 6 per cent to 6.5 per cent.
The new policy rate or repurchase agreement (repo) rate will be applicable from today, said a senior official of the central bank.
The monetary policy committee of the Bangladesh Bank took the decision on Wednesday in an emergency meeting presided over by the Governor Abdur Rouf Talukder.
The policy rate hike will increase Treasury bill rates which will push the lending rate up as the reference lending rate is linked with Treasury bill rates.
The reference lending rate, also known as SMART (six-month moving average rate of Treasury bill), surged to 7.20 per cent in September, the highest in six months, as Bangladesh stopped money creation through devolvement for deficit financing to curb money supply amid rising inflation.
Meanwhile, the general point-to-point inflation rate reached at 9.63 per cent in September. In August this year inflation averaged 9.92 per cent with record food inflation of 12.54 per cent according to the Bangladesh Bureau of Statistics (BBS).
Besides in July, overall inflation was stood at 9.69 per
cent – laying bare the magnitude of the cost of living crisis staring down on the poor and the low-income people.
However, at the beginning of the current financial year of 2023-24, the government had aimed to bring down the inflation to 6.00 per cent.
Country’s overall inflation The Consumer Price Index (CPI) rose 9.02 per cent in FY23 against the government’s revised target of 7.5 per cent which was the highest average inflation rate in 12 years. Additionally, from October 2022 to September 2023 the annual average inflation notched 9.29 per cent.
Experts said the fundamental reason for the current high inflation is excess demand pressure from money creation by the BB to finance the budget deficit and interest controls that have increased demand for domestic credit.
