INFLATION has remained a prickly issue that the Bangladesh Bank appears not to have been able to control because of its ineffective policies and failures in the implementation of the monetary policy. The Bangladesh Bank Order 1972 lays out that the first and foremost function of the central bank is to draw up and execute monetary policies to manage money supply, dollar rate and interest rates to influence the overall spending and inflation in the economy. But economists put down the failure to contain inflation to delayed decisions of the central bank on interest and dollar rates and its failure to stem the depletion of foreign exchange reserve, soaring amount of loans in default and illicit financial flows. The national statistical office in March recorded the headline inflation at 9.81 per cent, up from 9.67 per cent the month before. Inflation has, in fact, remained consistently high at more than 9 per cent since March 2023. The central bank governor on different occasions earlier promised to bring down inflation to 8 per cent, but the central bank has failed in the task it promised.
Although the Bangladesh Bank has used a monetary policy of contraction to contain money supply on the market, it is reported to have continuously printing money, which is a process to provide financial support on promissory notes by creating money, to finance the government, which ultimately adds to inflation. Economists further think that the high inflation resulted from the government鈥檚 failure to stop illicit financial flow and market syndication. They believe that delayed decision making is at the heart of the problem and note that other countries faced with a similar pressure of inflation have significantly increased interest rates as early as possible as a measure but the Bangladesh Bank has always been slow and the response has mostly been modest. Economists also criticise the introduction of an artificially controlled rate of the dollar, which has not effectively attended to the shortage of the dollar. And, businesses have faced continuous import restrictions in such a situation. The Bangladesh Bank in April 2020 imposed caps on both loan and deposit rate, initially at 9 per cent and 6 per cent reportedly on the insistence of powerful business quarters so that private investment would not shrink. But, private investment has remained stagnant at 23 per cent for many years, suggesting the futility of the central bank measure. In addition to the cheap money in the economy, the central bank increased money supply by printing money to meet the government demand for borrowing, which in the 2023 financial year amounted to Tk 1,240 billion 鈥� Tk 988.26 billion from the central bank and Tk 252.96 billion from commercial banks.
Widespread inflation was noticed also across South Asia because of economic downturn, but most of the countries could recover from it. But, Bangladesh has failed to do so because of weak measures. While the government must strengthen its financial management measures, it must increase essential goods supply, reduce business cost, control unnecessary expenditure and timely complete projects to contain inflation along with ensuring transparency and accountability.