Bangladesh may face some inflationary pressure in the coming months thanks to Covid-led global supply chain disruption and the continuation of global price hikes, said the central bank.
In observations of a quarterly report on economic and financial developments, the Bangladesh Bank said the country's economy started rebounding from the Covid-19 fallout with timely implementation of stimulus packages and continued fiscal and extraordinary monetary policy support.
The speed of a broad-based economic recovery is likely to get momentum in the near future in the backdrop of declining Covid infections, extended vaccination programme, growth supportive fiscal and monetary policies and optimistic outlook of exports, it noted.
However, the report in a note of caution stated that slower than expected growth on the global front, rising inflation, shortage of inputs and labour, and rising shipping costs appear to be the downside risks to that recovery.
The report said real GDP grew by 5.47% in the 2020-21 fiscal year compared to 3.51% growth in 2019-20FY.
"The recovery of the growth momentum was largely evident in the industry sector (6.12%) and service sector (5.61%), while the agriculture sector maintained a robust growth of 3.45% in the 2020-21FY," said the central bank.
Hefty remittance inflow and low cost finance propelled the consumption expenditure which helped revitalise the growth momentum, outweighing the supply side disruptions following the nationwide virus lockdown and restrictions in the last quarter of 2020-21FY to limit the spread of delta variant of Covid-19.
With the support of prevailing low interest rates and ample liquidity in the banking system, the capital market was vibrant in the 2020-21 FY and witnessed a strong bullish trend in the fourth quarter, said the report.
Supported by prudential banking resilience policies, the central bank in the report stated that the banking sector performed well last year even amid the Covid-19 pandemic compared to the previous year.
"In the 2020-21 fiscal year, asset quality, capital adequacy, and profitability were much better than expected," said the central bank.
However, AB Mirza Azizul Islam, an economist and also the financial adviser to the former caretaker government, it is not convincing that banking sector performance in the last year was good.
"The private sector credit growth is still unsatisfactory," he argued, recommending speeding up actual sector-wise bank investments.
On the central bank's inflation projection, he said there might be some inflationary pressure riding on the rise in aggregate demand.
"Now we should take action to control food inflation through government subsidiary food programmes such as VGF [vulnerable group feeding] and slashing import duty on consumer items."
However, AB Mirza Azizul Islam believes the situation would not deteriorate so badly that the inflation would cross the 6%-mark.
The Bangladesh Bank set the inflation ceiling at 6% in the monetary policy as the government in the national budget projected the inflation to be 5.3% this year.