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Bangladesh Bank rejects the contractionary policy suggestion by IMF July 27, 2008

Posted by bdoza in BANGLADESH, ECONOMY, GOVERNANCE.
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Thomas R Rumbaugh, advisor to the Asia and Pacific Department of IMF visited Bangladesh few days back and suggested a tight monetary policy for Bangladesh instead of Expansionary policy that Bangladesh is now pursuing.

He said that monitary policy should be less expansionary to contain the already high inflationary pressures. Bangladesh’s medium term outlook is positive, Rumbaugh said, but inflationary pressure is a major challenge.

Political uncertainty surrounding local and national elections is a short-term risk while dealing with climate change is a huge long-term challenge for Bangladesh, he added Escalating food and fuel prices in international market caused inflation in the country to go up, which averaged 10 percent in 2007-08 fiscal.

“It will be more difficult to check inflation if oil and food prices rise further in the international market,” Rumbaugh said.
[DS 15 July 2008]

Economists rejected the International Monetary Fund’s (IMF) advice to follow a contractionary monetary policy instead of an expansionary one, saying that the move would limit business and fuel inflation.

They criticized the IMF for pushing a policy, which had failed to bring any positive impact two years ago

“I do not agree with IMF’s opinion. Contractionary policies will be fatal for the economy,” Khandaker Ibrahim Khaled, former deputy governor of the central bank and incumbent chairman of Krishi Bank, said.

Zaid Bakht, director of Bangladesh Institute of Development Studies (BIDS) termed the IMF’s policy suggestion as a ‘wrong diagnosis’ of the economy.

“The accommodative monetary policy, which the BB is currently following, is the right one. There is no scope for shifting to a contractionary policy at the moment,” Prof Mustafizur Rahman, executive director of Centre for Policy Dialogue (CPD) said.

Asaduzzaman said businessmen would be in great trouble if private sector credit flows were squeezed. Ibrahim Khaled said if the IMF advice is implemented, raw material import and industrialisation would suffer.

“The BB should go slow if it wants to implement a contractionary monetary policy,” the BIDS director said.

“Inflationary pressures could be lowered by producing and increasing the supply of goods,” Prof Mustafiz said.[DS 17 July 2008]

Bangladesh Bank announced that it would continue to follow the expansionary monetary policy ignoring the International Monetary Fund’s (IMF) suggestion to tight it, to tame the surging inflationary pressures.

“If the policy is tightened at the moment, the pace of the economic activities may be hampered,” Bangladesh Bank (BB) governor Dr Salehuddin Ahmed told newsmen during announcing the monetary policy for July-December period.

“Monetary tightening can bring down inflation, but it has unacceptably high costs in terms of output and employment which Bangladesh can ill afford at present in view of its growth and poverty reduction imperatives,” he said.[DS 18 July 2008]

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1. IMF » Hungersnöte gefährden den Frieden - Neue Zürcher Zeitung - July 28, 2008

[…] Bangladesh Bank rejects the contractionary policy suggestion by IMFThomas R Rumbaugh, advisor to the Asia and Pacific Department of IMF visited Bangladesh few days back and suggested a tight monetary policy for Bangladesh instead of Expansionary policy that Bangladesh is now pursuing. … […]


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