Easy funds from stimulus packages trigger inflation fears

Bangladesh is eyeing a robust economic growth on government measures to ensure flow of money amid the coronavirus crisis, but easy funds from the stimulus packages have triggered fears of inflation.

Even Bangladesh Bank has warned of the risks lying in the release of the loans that aim to help the private industries soften the blow of the pandemic crisis in order to prevent job cuts, reports bdnews24.com.

Growth outlook is positive due to lockdown measures being lifted in Bangladesh as well as in the advanced and emerging market economies, the central bank said in its quarterly report for April-June.

Moreover, a range of expansionary fiscal and monetary policies are likely to boost economic activities in full swing in the near future, said the report, published on Sunday.

 “But, extraordinarily easy financing conditions may pose upside risks for price stability in the coming quarters,” it added.

The central bank suggested active vigilance and policy tuning to balance between growth recovery and price stability.

Point-to-point general inflation increased to 6.02 per cent in the quarter from 5.48 per cent in the previous quarter amid some volatility, driven by a rise in food prices that emanated mostly from pandemic-induced global and domestic supply chain disruptions.

Though food inflation witnessed a notable rise during the quarter, non-food inflation moderated because of subdued demand of elastic items. Accordingly, 12-month average inflation rose to 5.65 per cent in FY20 from the target of 5.50 per cent.

Rice prices, however, remained the single largest contributor to food inflation throughout the quarter, the Bangladesh Bank noted.

Again, pulses and spices price hike contributed much to food inflation.

 “Looking ahead, upside risk to headline inflation in the near term may arise from the slowdown in economic activities resulted from supply and demand disruption caused by the pandemic driven mitigation measures,” the report said.

Further inflationary pressure may create from recent crop loss due to cyclone Amphan and prolonged floods in the northern and central parts of the country, it said.

Moreover, policy response of the food-exporting countries regarding restrictions on food export is likely to affect food inflation in the near future, it added

Salehuddin Ahmed, former governor of the Bangladesh Bank, and researcher Ahsan H Mansur said the central bank’s concerns are genuine.

The government has approved over Tk 1 trillion, or more than one-fifth of the last national budget, in stimulus packages to cushion the economy from the pandemic crisis.

Salehuddin told bdnews24.com on Tuesday that there was no alternative to increasing the money flow amid such an unprecedented crisis. But the government must ensure the use of the money in productive sectors and repayment of the loans.

 “If the unproductive sectors get more money or the funds are laundered abroad, it will create a greater risk for the economy,” he warned.

Mansur, the executive director of Policy Research Institute, said inflation was under control due to good harvests despite the odds like natural calamities, and low prices of food and oil in the global market.

“The situation is different now. Prices of almost all the commodities, including rice, pulses, flour, onion, vegetables, fishes and meat, are on the rise,” he said, blaming the damage of the supply chain due to the pandemic, floods and market manipulation for the hikes.

 “In addition to these, the increased flow of money into market from the stimulus packages has created fears of further inflation,” he added.