Govt aims to bring down inflation to 6.5pc

InflationRepresentative image

The government has planned to bring down inflation to 6.5 per cent within the fiscal year 2024-25.

“We are expecting that the inflation rate will come down to 6.5 per cent in the next fiscal year as an outcome of the policy strategies that we have adopted,” finance minister Abul Hassan Mahmood Ali said in his budget speech on Thursday.

He noted that the government adopted a series of contractionary monetary policies, aligning with global trends. The central bank has significantly increased interest rates, with the policy interest rate now at 8.5 per cent, the Standing Lending Facility (SLF) rate at 10 per cent, and the Standing Deposit Facility (SDF) rate at 7 per cent.

Besides, the Six Months Treasury Bill based Interest Rate Determination System (SMART) has been abolished and made a market-based system.

Under the new system, loan demand and interest rates will be determined by credit supply and the relationships between bankers and customers.

These monetary measures are part of a broader strategy to curb inflation, which has been affecting the economy and the common people.

The government has also implemented supportive policies. Programmes like the Family Card and Open Market Sales (OMS) are being bolstered to mitigate the adverse effects of inflation on vulnerable populations.

The government is optimistic that these combined policy strategies will reduce the inflation rate to 6.5 per cent in the next fiscal year.

In his speech, the finance minister said although the disruption in the supply chain in the domestic market is the main reason for spiraling inflation, the other reason is the devaluation of taka against foreign currency.

When the impact of Covid19 slowed down in 2021-22, the businesses gathered momentum. As a result, the trade deficit exceeded over $35 billion which essentially created pressure on the foreign exchange reserve and the exchange rate.

The gross foreign exchange reserve stood at $39.6 billion in July 2022-23 which went down to $24.22 billion in May this year. To stabilise the foreign exchange market, the Bangladesh Bank had to sell off approximately $22 billion from the reserve. It is also responsible for the decline of reserves.

Taka was devalued approximately by 25.5 per cent against the US dollar. This devaluation increased the price of imported goods which had an impact on the overall inflation of the country, he added.