Staff Reporter :
The Centre for Policy Dialogue (CPD) has identified a significant mismatch between the Bangladesh Bank’s adopted contractionary monetary policy and the government’s populist expansionary fiscal measures, which has led to the current inflation rate hovering around 10 percent since March 2023.
According to the independent think tank, this inflation rate has substantially increased the cost of living and decreased consumer purchasing power.
Despite the central bank’s efforts to raise the policy rate sharply in recent times, high government spending and reliance on bank borrowing continue to contribute to the ongoing inflation rate.
Last October, the Bangladesh Bank increased its key policy rate by 50 basis points to 7.75 percent, marking the largest hike in a decade.
However, in May of this year, the policy rate was further raised to 8.50 percent, yet no significant development has been witnessed, with both food and non-food year-on-year inflation maintaining a higher trajectory.
CPD emphasized the interconnected nature of policies, stating that success in controlling inflation depends on the proper implementation of government policies.
The think tank highlighted the importance of coordination among relevant ministry departments, with monetary policy being a crucial instrument alongside fiscal, trade, and agriculture policies to mitigate inflationary pressure.
During a media briefing to share the review of Bangladesh’s economy, CPD illustrated the impact of price hikes on limited-income individuals.
They cited that the average price of coarse rice, primarily consumed by low-income people, has increased by 30 percent from Tk 40 per kg to Tk 52 per kg between January 1, 2019, and May 19, 2024.
Referring to previous reports, CPD highlighted that the price of three common types of rice in Dhaka consistently exceeds that of Thai and Vietnamese rice.
In April, the world market price of soybean oil stood at Tk 105 per litre, which was lower than the prevailing price in Bangladesh.
This discrepancy has exacerbated the financial strain on the populace, particularly the poorer segments of society, as they are now earning less while spending more on food, according to a report by the Centre for Policy Dialogue (CPD).
During his keynote presentation, CPD Research Director Khandaker Golam Moazzem emphasized the necessity of maintaining macroeconomic stability in the upcoming fiscal year (FY2025), focusing on controlling inflation and stabilizing the exchange rate.
He stressed the importance of policymakers addressing the plight of common people with limited incomes, suggesting concrete measures to alleviate inflationary pressures.
Moazzem also highlighted key issues for public finance management in FY2025, including enhancing fiscal space, prioritizing expenditure, and optimizing foreign financing.
He urged the Bangladesh Competition Commission to take a firm stance against cartels and adopt a zero-tolerance policy towards collusive practices to ensure fair market competition.
In terms of social support, Moazzem recommended direct cash assistance to those experiencing poverty, strengthening social protection for low-income families, and providing stimulus packages to small businesses to navigate challenging economic conditions.
He underscored the importance of effectively managing the distribution of essential commodities through the open market system (OMS), ensuring transparency and accountability to enable eligible individuals to access these items at affordable prices.