Bangladesh Bank (BB) yesterday said GDP growth in the current fiscal year would range between 6 and 6.2 percent. At the beginning of 2007-08, the growth target was set at 7 percent.

The central bank has come up with the revised projection in its monetary policy statement released yesterday.

It also made an upward adjustment to the inflation rate for the second half of the year, and said 2007-08 would see the rate of inflation moving between 8 and 8.2 percent.

In July last year when the fiscal year began, inflation was projected to be between 6.5 and 7 percent.

Bangladesh Bureau of Statistics (BBS) data shows that inflation in November 2007 was already running at 8.61 percent. Prices of both food and non-food items have been showing a rising trend and it will affect the inflation rate, say economists.

Presenting the monetary policy at a press briefing, BB Governor Salehuddin Ahmed said, “In the next six months inflation rate will show a reducing trend because supply chain of commodities will be improved and at the same time there will be less demand.”

Asked about 5.5 percent GDP growth forecast by World Bank and International Monetary Fund (IMF), he said, “They [World Bank and IMF] don’t run the country.”

He said donors made the projection in consultation with a few people in Dhaka. “We are dealing with real situation and have revised the targets in light of the present circumstances,” he added.

The BB governor said the policy stance has been revised in the wake of unexpected domestic shocks and unfavourable international developments.

Strong inflationary pressures emanating from both domestic and external sources led the inflation to overshoot the target which is 6.5 to 7 percent.

Besides, low investment and sluggish economic activity resulting from natural disasters and eroding business confidence had pressures on the economy.

Excess liquidity and relatively high spread between deposit and lending rates in the banking sector as well as disruption in normal economic activity due to back-to-back floods and cyclone were major challenges for the first half of the fiscal year, the policy statement says.

The BB governor said they have drafted a flexible monetary policy for the second half, which will be revised on demand. To achieve the targets, he stressed on stability of prices of essentials and income generation.

Quoting from the policy statement, he said efforts would be there to rev up economic activities by encouraging adequate credit flows to all productive sectors. They are needed especially to recoup the losses caused by natural calamities and improve the domestic supply situation.

“The policies would also facilitate the import of essential commodities to ease supply shortages in the domestic market,” he said.

“At present, the excess liquidity does not indicate any significant demand side pressure on the economy. However, with expected increase in economic activities in the coming months, the demand for credit may go up and if such a situation arises the policy stance would be to contain the demand side pressures without hurting the investment demand in the economy,” says the statement.

There are several factors that would be critical to effective monetary management during the second half of FY 08. Those include escalating subsidies on energy products, business confidence to accelerate private sector investments and reasonable socio-political stability, observed the policy statement.

BB deputy governors Nazrul Huda and Ziaul Hasan Siddiqui and Executive Director Habibullah Bahar were present at the briefing.