The government is hoping to contain inflation at 6.5 percent in the next fiscal year (FY25) with the help of the policies and strategies adopted by the government.
“We are expecting that the inflation rate will come down to 6.5 percent in the next fiscal year as an outcome of the policy-strategies that we have adopted,” said Finance Minister AH Mahmood Ali while placing the national budget for FY25 at Jatiya Sangsad (JS) Bhaban Thursday.
He said Bangladesh has already undertaken contractionary monetary policy in line with steps taken by other countries in the world to control inflation.
He said the interest rate has been increased significantly. Policy interest rate increased to 8.5 percent, Standing Lending Facility (SLF) rate increased to 10 percent and Standing Deposit Facility (SDF) increased to seven percent.
Besides, Six Months Treasury Bill based Interest Rate Determination System (SMART) has been abolished and made market-based. The demand for loan and the interest rate will be determined based on the supply of credit and the relationship between bankers and customers, Ali added.
To control inflation, the Finance Minister said various steps are being taken to make the monetary policy a successful one. At the same time, supportive policies are being implemented in the fiscal sector as well.
He said government support like Family Card and OMS Programmes are being strengthened to protect the common people from adversities arising from high inflation.
The Finance Minister said they have successfully managed the adverse effects of Covid-19 on the economy. However, the geopolitical instability of the world has created fresh risks for Bangladesh.
He said the Russia-Ukraine war that began in 2022 pushed the price of crude oil up to US$120 per barrel in the world market in June that year. As a result, he said the prices of essential goods including wheat and fertilizer sky-rocketed.
“This instability in the commodity market of the world pushed up inflation in all countries including Bangladesh. The inflation rate reached nine percent in the USA during June 2022. The concern for the disruption of the supply chain at the beginning of Ukraine-Russia war dispelled to a large extent later,” Ali added.
As a result, he said the prices of fuel, gas, fertilizer, wheat etc. came down significantly. “The inflation rate of the USA and our neighbouring India stood 3.48 and 4.85 percent respectively in March 2024,” he mentioned.
According to the projection made by IMF during April this year, the world inflation rate will decrease to 3.9 percent by 2027. However, the inflation rate in Bangladesh remains stubborn at above nine percent.
Although the disruption in the supply chain in the domestic market is the main reason for spiralling inflation, Ali said the other reason is the devaluation of Taka against foreign currency.
To stabilize the foreign exchange market, Ali said the Bangladesh Bank (BB) had to sell off approximatelyUS$22 billion from the reserve.
“This also caused the decline of reserve. In this context, Bangladeshi Taka was devalued approximately by 25.5 percent against the US dollar. This devaluation increased the price of imported goods which had an impact on the overall inflation of the country,” he added.
