Inflationary pressure has increased in the last five years as the country had to spend excess money on import of essential commodities due to huge depreciation of local currency.

“Following some neighbouring countries, the central bank could check continued inflation by appreciating taka against dollar …Had it (central bank) spent some portion of its foreign currency reserve to save the people from persisting price spiral, it would not have been illogical”

This was said in the keynote paper presented by Prof S R Osmani of the University of Ulster, UK, at a seminar organised by the Centre for Policy Dialogue (CPD) in the capital yesterday.

Bangladesh Bank (BB) Governor Dr Salehuddin Ahmed however differed with Osmani’s views and said, “Reserve manipulation and local currency appreciation are not the best way to achieving macro economic targets.”

There is no significant relation between inflation and foreign currency reserve or exchange rate, he told the seminar on ‘Interpreting Recent Inflationary Trends in Bangladesh and Policy Options’.

CPD Chairman Prof Rehman Sobhan moderated the seminar held at Brac Centre Inn.

“First of all, in the present stagflation, we have to go for policies for recovering economic trends along with reining in inflation,” Salehuddin said.

The central bank governor also refused to compare Bangladesh’s inflationary pressure with that in India. India is definitely a success story in terms of hecking inflation. But there are some tight measures that India follows but Bangladesh cannot, he said.

Prof Osmani, also a visiting professor at Brac University, said the main reason behind increasing inflation in Bangladesh is price hike in international market. Another significant reason is repeated depreciation of taka against dollar, he added.

When Bangladesh repeatedly depreciated its currency, currency of neighbouring India, the main source of Bangladesh’s essential imports, remained stable, Osmani said.

“Therefore, value of taka declined not only against dollar but also against Indian rupee. As a result, Bangladesh had to pay extra money in importing essential commodities,” he said. Extra expenditure results in extra inflationary pressure, he noted.

Speaking as guest of honour Prof Wahiduddin Mahmud said to check continued inflation, there is no alternative to becoming self- sufficient in food production in the long run.

He also stressed building a buffer stock of food items for curbing inflation. If the government has a huge quantity of food stocks, so-called syndicates cannot manipulate their market prices, he added.

The government organisation concerned should act as a market friendly one but it is not possible for the existing Trading Corporation of Bangladesh (TCB), the renowned economist said.

“Country’s foreign currency reserve can be used in a crisis situation. But what does a crisis mean or what crisis should be considered to manipulate reserve are to be addressed first,” he said.

Salehuddin said cautious monetary policy is not a new thing for Bangladesh. It has merits and demerits as well. Bangladesh Bank had to adopt cautious monetary policy following a volatile situation in foreign exchange market, he noted.

At present inflation rate is around 7 percent. It could be very unkind if anyone said the BB’s cautious policy has no effect on checking inflationary pressure, said its governor.

Dr Muhammad Farashuddin, former BB governor, stressed post flood rehabilitation programme and massive open market sale programmes in the rural areas.

He said foreign currency reserve should be utilised for the wellbeing of the people.

Former finance minister M Saiduzzaman suggested increasing the government’s food stock. Otherwise inflation could double in next three years, he thought.

Prof Rehman Sobhan said inflation hurts ordinary people of the country. So, monetary policy should ensure their welfare.

He also urged the BB governor to take proper steps in line with the post- flood programmes in 1998.