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The Financial Express

Monetary policy and gas price hike


Monetary policy and gas price hike

On the 14th of this month, the Bangladesh Bank (BB) unveiled a 'cautiously accommodative' monetary policy. One of the core objectives of the policy is to tame soaring inflation. Though proved ineffective in previous months, the central bank hiked the policy rates, taking simultaneously other measures to help reduce inflation which is cost-push in nature.

Only four days apart, a record hike in gas tariffs for bulk consumers including industries and power plants irrespective of their ownership and size has been effected. This is in sharp contrast to the inflationary objective set in the latest monetary policy. Now the central bank needs to rewrite the monetary policy, but that is very much unlikely.

The latest hike in gas tariffs, naturally, has given rise to questions about its timing and size. The inflationary pressure, caused by high fossil fuel and commodity prices, has been hurting general consumers, industries and commercial entities. Some people have the capacity to absorb the shock, but the majority have been passing through a difficult time.

Though the latest gas price hike has spared households, they would not be able to escape the overall effect of the hike in case of industries and power plants. The rise in the cost of production of goods and power due to gas price increases will be passed on to the consumers.

A section of industrial consumers, particularly those in the textile sector, had expressed their willingness to pay higher tariffs if the government ensures an uninterrupted supply of gas to their mills and factories.

Now, the same people are finding the latest hike 'too high'. They say such an abnormal increase in gas tariff would push up their cost of production and reduce competitiveness in the international market.

There prevails uncertainty about the global economic prospects in the immediate future. Though talks about severe recession are subsiding lately, indications of an economic downswing are there. In such a situation, demand for goods from major importing countries might decline and retailers there would look for cheaper goods. With their cost of production going up, it would be difficult for Bangladeshi exporters to meet the requirements of their buyers.

There is no denying that the government needs to reduce its huge burden of subsidies on account of power and gas when the revenue receipts have remained well below the target. But the withdrawal of subsidy in a big chunk at one-go is likely to cause suffering to most consumers who are already hard-pressed because of the recent hike in power tariff. Now that gas tariffs are up, the power rates might also go up soon.

If the government ensures an uninterrupted supply of gas to industries, it will have to import LNG in sufficient volumes. Otherwise, there is a strong possibility that general consumers would remain gas-starved. But the question is whether the government will be able to import LNG under the prevailing circumstances, as there is a shortage of foreign exchange at home and LNG is the most sought-after fuel internationally because of the Russia-Ukraine war.

So, the large increase in gas tariffs would surely give rise to some undesirable developments. The authorities concerned should have made a thorough assessment before taking such an important decision. It will be appropriate for them to find measures that would help reduce the economic sufferings of the common people and keep the export trade buoyant.

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