Deep uncertainty in the global financial system has forced Bangladesh Bank (BB) to make a cautious forecast for this year’s GDP growth, BB chief economist Dr Mustafa K Mujeri said on November 2.

“We want to be relatively cautious because we do not know about the possible impacts of the global financial meltdown on our economy,” Mujeri told reporters at a briefing on the publication of BB quarterly report for July-September 2008 at the central bank’s headquarters.

The BB quarterly projected a GDP growth rate ranging from 6.2 percent to 6.5 percent although the government estimated the growth in the budget for 2008-09 at 6.5 percent. Bangladesh’s economy grew 6.2 percent in fiscal 2007-08 despite the political turmoil and erosion in business confidence.

Major economic indicators in the first quarter of the current fiscal year show positive signs, which actually started in the second half of the last financial year, the report revealed. Despite a clear indication of continued upturn in economic activities, the central bank has made a relatively lower GDP growth rate because of what it said current global turmoil and uncertainty.

“The impact of the global crisis on our economy is still unclear. We will be able to assess the impacts once the BB completes its study,” Mujeri said. “We are yet to know what will be the impact on our export and remittances.” The Policy Analysis Unit (PAU) of the central bank is conducting a study to diagnose the possible impacts of the present global situation.

The quarterly is a flagship publication of the central bank, which analyses the performance of different macroeconomic indicators and makes a short-term economic outlook. Habibullah Bahar, economic adviser of BB, was also present at the briefing.

The BB report also forecasts that food inflation will decrease this year following a downward trend in the prices of commodities in the international market. But it cannot assure a decline in non-food inflation due to strong demand pressure and high private sector credit growth. The chief economist also predicts that the national polls scheduled for December 18 will push personal expenditure up and create inflationary pressure.

Mujeri was also quizzed why the prices of essentials do not come down in the local market despite its significant fall in the international market. “There is no reflection of this price fall in the local market. The pass-through takes time and I hope consumers will benefit from early next year,” he said. He said prices were reduced following a decline in demand in the western nations, but supply-side constraints remain unchanged.

The chief economist also blamed the poor market structure for not benefiting the consumers from the price fall in international markets. Mujeri stressed the need for prudent government intervention and careful regulation for an effectively supervised and regulated financial system. “The priority for Bangladesh is to improve the quality of information that banks and other financial institutes put,” he said, adding: “Bangladesh needs to plug those gaps in order to avoid any systemic distress.”

Analysing the performance of the first quarter (July-Sept) of FY 2008-09, the BB quarterly said the real economy performed well despite the adverse effects triggered by both global and domestic situations.