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Monday, August 20, 2007
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Restore traders' confidence to contain inflation

Central bank seminar told

Leading economists and top businessmen yesterday asked the government to bring back confidence of the business people to contain the inflation rate instead of taking contractionary economic policies.

Addressing a seminar on "Inflation in Bangladesh: The evidence and policy alternatives ", the speakers identified disruption of supply chain for the increasing trend of the inflation rate and suggested new investments which would generate employment.

Finance Adviser Mirza Azizul Islam, however, held a few businessmen responsible for making extra profit at some point as he found domestic prices irrational in comparison with the import costs. "The domestic to international price ratio has marked a fall," Azizul said.

On Bangladesh Bank's cautious monetary policy that drew heavy criticism at the seminar, Aziz asked why the commercial banks have such huge excess liquidity. "Why has this (interest rate) spread remained so high for many years despite so many private banks?" he said.

Policy Analysis Unit (PAU), an independent research wing of the Bangladesh Bank (BB), organised the seminar at Centre on Integrated Rural Development for Asia and the Pacific (Cirdap) auditorium with former finance minister M Syeduzzaman in the chair and the finance adviser as the chief guest. Bangladesh Bank Governor Salehuddin Ahmed delivered the address of welcome while BB resident economic adviser Prof Syed M Ahsan presented a study paper on inflation.

The BB study paper emphasised the important role of monetary policy as well as the prudent supply-management issues arising out of globalisation of the commodity trade.

Economists, former bureaucrats, academics, researchers, representatives from development partners, bankers and trade-body leaders were present at the seminar.

Eminent economist Prof Rehman Sobhan identified disruption of supply chain as one of the main reasons behind the rising inflation rate. He recommended more investments for keeping the inflation rate under control.

M Saiduzzaman said price stabilisation should be the prime objective of the government. He said government organs like the Trading Corporation of Bangladesh (TCB) and Bangladesh Rifles (BDR) can supplement the market, but not replace it. "The importers should get the chance so that they can sell their products in a normal market," he said.

He stressed the importance of more investments for generating employment to cope with the inflation rate increase.

Centre for Policy Dialogue Executive Director Debapriya Bhattacharya said the product-supply problem is one of the major reasons behind the inflation rate increase. There was no significant growth in agriculture productions in the last fiscal year while import and food stock levels are also low.

"If we go for tight economic policies to stabilise the situation, there may be adversities," he said.

Referring to the BB study on inflation, he said one of the major deficiencies of the research is that it does not throw light on food productions and alternatives to improve supply.

He said the study also does not direct anything about alternatives to tightening monetary policy as restrictive monetary policy is not suitable at the moment.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Anwarul Alam Chowdhury said contractionary economic policies might bring disaster for the country. He urged for the creation of a congenial atmosphere for investment. "Interest rate on bank loans in Bangladesh is too high in comparison to our competitors', like in India and China," the BGMEA president urged the government not to increase interest rates further.

Prof Moinul Islam said businessmen are in a shaky position after the anti-corruption drives. The government should work to build confidence of the businessmen so that businesses work normally.

Association of Bankers Bangladesh (ABB) President M Aminuzzman said there is huge excess liquidity in the current system of banking in Bangladesh. He also urged for the creation of a congenial atmosphere so that businessmen are encouraged to invest idle money.

The ABB president criticised a number of recent directives of the central bank. He said those directives may hamper the banking business. "We would have to consider the reality before formulating any policy," he said.

Addressing the seminar, Mirza Azizul Islam said the government was trying to increase domestic supply by boosting production.

The adviser further explained that the demand went up on income increase.

Expressing his concern for the poor who have been hit hard by the inflation, he said, "Most probably the government would go beyond the safety net budget for the poor.

He called upon the commercial banks to give a serious look at their interest rates and cut it, at least temporarily. "I am also giving a serious look at the interest spread," he warned.

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