Bangladesh Bank (BB) Governor Dr. Ahsan H. Mansur hopes inflation will come down to 7 percent by June and the government aim to bring it down to 5 percent by next fiscal year. If inflation does not come down even slightly by January, the monetary policy will be further tightened.
He made the observation while speaking as chief guest at an investor conference organized by BRAC EPL and consulting firm Asian Tiger Capital Partners at Sheraton Hotel in the capital on Thursday night.
Former lead economist at World Bank office in Dhaka Dr. Zahid Hossain presented the keynote paper at the conference. Economist Dr. Masrur Riaz, Professor Mostaq Hossain Khan, BRAC Bank MD Selim RF Hossain, and president of DSE brokers' organization DBA Saiful Islam participated in the discussion.
Asian Tiger Capital Chairman Ifti Islam moderated the event. Investors from various countries including the United States, participated in the event.
Governor Ahsan H. Mansur said all the problems the government is now facing are inherited, inflation is the biggest one.
Everything that the government and Bangladesh Bank could do to control it has been done. But inflation is still not coming down, though monetary policy has been tightened enough.
The central bank has not given a single taka to the government. The government has taken loans from banks when needed. The government has also reduced spending and trying to keep the budget's internal debt at a reasonable level, he said.
The governor said shortage of supply of goods is a big problem. Floods in August and September and a long rainy season impacted production of crops like onion, potato and winter vegetables keeping the market short supplied.
He said though a delay of one to two months happening, onion and potato yield is good and push prices down to Tk 30 and Tk 40 in two months.
He said the government has lifted all import duties on essential food items to ensure supply. It has left nothing to do to make the prices of onion, oil, sugar and basic food items a little bearable to consumers. He expected some results by next February.
"Now the policy interest rate is 10 percent and the loan interest is around 14 percent. This is probably the highest. If I see that inflation has not come down by January, I will have to take a stricter monetary policy." The policy interest rate and interest on bank loans will also increase.
He cited three major challenges in the economy including weakness in external sector, inflation and weak banking sector. The interim government inherited a deficit of $2.5 billion in foreign payments. The reserves were also continuously decreasing. There was a problem with imports as foreign banks were not willing to open LCs.
In this short period, problem related to opening LCs has been solved. Where LC bill payments were more than $2.5 billion, now it has come down to $300 million. Efforts are being made to resolve the problem by talking to the banks and to reduce it to zero.
The governor said, 'I will not tolerate leaving a single LC bill unpaid. I have clearly told banks if the LC is opened, whether it is opened by S Alam or anyone else, it is the bank's responsibility. Bank itself has to settle it. I am hopeful the bills that are still outstanding will be cleared within a month.'
Non-payment of bills occurred in several banks. The money was laundered abroad. To solve the problem, a draft of Bank Recovery Act has already been prepared, under which the central bank has been given the power to take strict and practical measures such as liquidation, merger, and forcing it to get new capital as needed.
Ahsan H. Mansur said the US and UK governments have been contacted to recover laundered money. 'We have contacted the European Asset Recovery Program, the World Bank Group. We are receiving great support. The US Treasury has already visited Bangladesh twice and they will come again in January, he said.
