The 5.3 per cent inflation target, set by Bangladesh Bank’s new monetary policy, is not realist as it has been estimated on the basis of a consumption basket developed 16 years ago since when the cost of living has jumped much higher.   

This observation was made by leading think-tank Centre for Policy Dialogue (CPD) at a virtual media briefing on the newly announced monetary policy statement (MPS) on Tuesday.

CPD said that the consumption basket used for calculating overall general inflation was created in 2005 and so it does not reflect the current reality and actual prices in the market.

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“The poor and low income groups are increasingly finding it difficult to meet their requirements in the face of dual blows from—erosion in purchasing and income”, said Dr Fahmida Khatun, executive director of CPD in the presentation on the MPS 2021-22.

She said that data shows that the 12-month average food and non-food inflation rates have fluctuated in a cyclical pattern over the past several years.

“So, the inflation rate has lost its relevance to the real world”, she said, adding that the consumer price index (CPI) of medical care and health expenses increased from 156.1 in July 2012 to 251.9 in June 2021.

She noted that the inflation rate of medical care and health expenses increased from 0.18% in April 2020 to 2.42% in May 2020, due to the rise in COVID-19 cases.

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Dr Fahmida also said the share of transport in actual consumption expenditure was 15% higher than the weight in CPI.

CPD distinguished fellow Prof Dr Mustafizur Rahman, director research Dr Khondaker Golam Moazzem and senior research fellow Towfiqul Islam Khan also spoke on the occasion.

The CPD also said that the target for private sector credit growth at 14.8% is unlikely to be achieved as “it is very high compared to the trend in the recent past”.

Indeed credit to the private sector has been largely on a declining trend since Mar 2018 – and is below 10% since November 2019.

The Bangladesh Bank on July 29 announced the MPS 2021-22 setting up its different monetary targets with continuing its ongoing expansionary monetary policy amid a cautious stance for the current fiscal year (FY) to help boost recovery of the pandemic-hit economy.

The CPD said the poor and low income group people should be provided with direct cash support to create demands in order to make the economic recovery from the shock of the Covid-19.

It also suggested easing the conditions for the non-formal sector to ensure bank loans under the stimulus package, saying that the big businesses are taking the full advantage of the government’s financial support while micro and small businesses are far behind in the race.    

About the lower private investment inflow, Dr Mustafizur said setting up a special economic zone alone cannot play an effective role to attract private investment.

 “There are so many factors like ease of doing business, regulatory support, supportive infrastructure, one-stop service and also skilled manpower which need to be addressed to attract private investment”, he said.

Responding to a question on the remittance management, he said the government can issue bonds in foreign currency for mega infrastructure for which it takes foreign loans.

“That requirement could be met with these bonds ensuring the investment is safe and return is secured”, he added.

About excess bank liquidity of about Tk 2.5 lakh crore, Dr Golam Moazzem said the Bangladesh Bank can take measures through bringing change in different mechanisms of cash reserve ratio CRR and statutory liquidity ratio (SLR).

He said a joint monitoring of Bangladesh Bank and Bangladesh Securities and Exchange Commission (BSEC) is essential to ensure that the money provided by the government’s stimulus package is not invested in stock market.