The central bank assumes that political tensions centring on next general election in the country will be insignificant and hence economic growth and inflation are likely to remain stable in the current fiscal year (FY).
"Looking ahead, growth and inflation outlook would likely remain relatively favourable in FY 2018-19, assuming no significant pickup in election-related political tension," said the quarterly update of the Bangladesh Bank (BB).
The latest Bangladesh Bank Quarterly (BBQ) report for the April-June period was released on Wednesday.
The World Bank (WB) and senior economists, however, view the upcoming election as a domestic risk factor that may affect business confidence and investment, if the polls are not inclusive.
"With election approaching, a major domestic risk is the weakening of ongoing efforts to improve economic governance," the WB said in its latest Bangladesh Development Update, released on Tuesday.
"This could affect confidence and investment," the WB said.:
Talking to the FE, Mustafa K Mujeri, former director general of Bangladesh Institute of Development Studies (BIDS), said the country's economy might face challenges, if no inclusive general election could be held.
Besides, the election system of Bangladesh was yet to be institutionalised and resultantly a possible uncertainty was still looming, he added.
"Possible risks from both domestic and external sectors should be considered for ensuring macro-economic stability in the near future," Mr Mujeri, also former chief economist of the BB, explained.
The BB has indentified global trade conflicts along with monetary tightening in the advanced economies as downside risks for achieving maximum economic growth in Bangladesh.
"Downside risks to growth from global trade conflicts, monetary tightening in the advanced economies and any broad-based pick-up in emerging market vulnerabilities remain," it warned.
The central bank has recommended that policy makers ensure macro-financial stability in the face of a sizeable current account deficit while the changing global liquidity conditions would require continued vigilance.
Despite a rebound in exports and strong remittance inflows, the deficit in current account balance widened to US$9.78 billion (around 3.0 per cent of GDP) in FY18.
It was driven mainly by a sharp increase in infrastructure-related imports in connection with implementation of the government's mega projects, higher food imports due to last year's floods and rising global commodity prices, according to the BBQ.
However, a favourable financial account surplus moderated the overall balance to a deficit of around $0.7 billion, it added.
"Looking ahead, strong economic activities in some of the Middle Eastern economies and the Government's efforts to reduce the cost of remittance are expected to support remittance inflows, moderating current account deficit and boosting domestic demand and growth," the BB added.
It also said stronger global growth momentum could support Bangladesh's export, although trade-related conflicts clouded the short-to-medium-term outlook.
"Import payments are expected to moderate as food and other one-off imports taper off over the coming quarters," it predicted.
Regarding the overall economic situation, the central bank said a broad-based pick-up in economic activity continued in the final quarter of the FY 18, supported by strong domestic and external demand.
"Strong private sector credit growth together with a rebound in remittance inflows helped boost consumption demand," the BBQ added.
Aided by favourable financing conditions and fiscal policy supports, both public and private investments picked up during the period, as reflected in the strong growth in investment-related imports, according to the BBQ.
On the supply side, the growth momentum received support from the industry and the services sectors, it added.
The agriculture sector activities also remained solid, aided by favourable weather, higher crop prices and timely supply of inputs and finance.
Real GDP (gross domestic product) growth reached 7.86 per cent in FY 18, up from 7.28 per cent growth in FY 17.
However, rising non-food inflation and expectations for upward inflation may pose challenges for the central bank to contain the overall inflationary pressure in the days to come.
The BB's latest quarterly review report has hinted at this without explicitly mentioning any concern in this regard.
"Looking ahead, a good food harvest may offset some inflation risks from the pass-through effects of global oil and commodity prices," the BBQ said.
"However, rising non-food inflation and inflation expectations may constrain any significant improvement in the inflation momentum," it added.
The quarterly mentioned that the annual average headline inflation edged down to 5.78 per cent in the last quarter of the FY 18, mainly 'due to moderating food inflation' after rising gradually since the last quarter of FY17.
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