Inflation falls slightly to 9.74% in June
The country had recorded an inflation rate of 9.94% in May, the highest in a decade, according to the BBS data.
The monthly inflation rate has slightly fallen to 9.74% in June, a drop of 0.2 percentage points from the previous month, according to data released on Monday by the Bangladesh Bureau of Statistics (BBS).
The country recorded an inflation rate of 9.94% in May, the highest in a decade, according to BBS data.
Food inflation stood at 9.73% in June, an increase from 9.24% in May, while non-food inflation hit 9.6%, down from 9.96% the previous month.
In the new monetary policy effective from 1 July, the Bangladesh Bank, as part of its contractionary stance, hiked key policy rates to make loan costlier in the hope of taming runaway inflation.
The repo rate, also known as the policy rate, was raised from 6% to 6.50% and an interest rate corridor has been set adding 3% to the six months' average of treasury bill rate.
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At present, the six-month treasury bill rate is 7.1%, and following the new formula new lending rate will be a maximum of 10.1% for banks from 1 July, hardly a percentage point higher than the lending cap in force for more than three years.
The new lending formula will less likely be effective in bringing down inflation, economists earlier warned, criticising the monetary policy for not having effective steps to lower inflation as central banks in many other countries, including in India and Indonesia, could do.
Dr Zahid Hussain, former lead economist of the World Bank Dhaka Office, cited how some other countries took specific measures to curb inflation and saw success. "While other countries hiked interest rates to control inflation, our policy responses were quite opposite; in the last one year we did not increase lending or deposit rates that much," he pointed out, explaining how the lending rate cap prevented the gains from policy rate hikes so far made.
"Policy rate is implemented through lending rates, which might fall 1% or a little more from July. But this won't be enough," said the economist.
Restricting imports through foreign exchange control and printing money to finance the budget deficit – both fuelled inflation further, he pointed out, showing how measures aimed at fighting inflation proved counterproductive.
Asked what more the central bank and the government could have done, Zahid Hussain said the government must cut its expenditure first and find ways to stop market manipulation that often frustrates the government's moves to keep prices in check.
"We can't believe that the government is not aware of how prices are manipulated. Moreover, it will be difficult to keep inflation in check until interest rates are made market-based in true sense," he said.
In its monetary policy, the central bank explained why its previous policy stance failed to stop inflation from roaring.
"The lack of a competitive environment, along with market syndication, could have also contributed to the current CPI inflation," it said.
The post-Eid-ul-Adha market behaviour, with green chilli shooting to historic highs of Tk800-Tk1,000 a kg before falling to Tk300 in a couple of days, reflects how commodity prices are manipulated. Commerce Minister Tipu Munshi on Saturday warned of a crackdown on "syndicates" involved in raising essential commodity prices.