New pay scale to put pressure on inflation
Bangladesh Bank on Tuesday said that there was investment stagnancy in the country in the outgoing year of 2014 due to political turbulence, general strikes and blockades in 2013.
It also warned that an upward pressure on inflation will remain in the new year of 2015 due to the new pay scale and other global and local issues. ‘Political turbulence, hartal, and blockades that spanned through 2013 almost entirely took heavy toll on the economy of the country. As a result, there was investment stagnancy in the whole year of 2014,’ said a BB press release on ‘The Economy in 2014 and Looking Forward’.
The BB said, ‘The aftermath of 2013’s turmoil created some degree of uncertainty in investment, but investment began to accelerate around the end of 2014.’
The central bank said that the economic developments of 2014 conveyed mixed signals. ‘Most financial indicators displayed remarkable progress. However, some opportunities for improving infrastructure and revenue mobilisation still remained,’ it said.
Excess liquidity of the Dollar and Taka in the local market began to evaporate, suggesting a revival of trade and commerce.
The last period of 2014, however, marked a new momentum in consumer and business confidence. Imports and exports reflected an upward trend and the foreign currency reserves registered a new record.
If the stimulation in domestic demand that the economy experienced at the end of 2014 is continued, earning a GDP growth rate of 6.5 per cent or more will not be difficult in 2015, the BB predicted.
The BB said an upward pressure on inflation will remain due to the new pay scale, the possibility of oil price hike because of political tension in the Middle East, and finally, the demand pull impact on the price level because of output growth.
The BB will keep these issues in mind and design the upcoming monetary policy accordingly so the targeted 6.5 percent inflation becomes achievable.
There remain some aspects of economic discomfort that include defaulted loans, excess liquidity, and some irregularities at the branch level of scheduled banks in 2014.
The BB claimed that such type of discomforts had emerged due to the staggering toll of political disturbances of 2013.
The BB has taken initiative to mitigate the discomforts by taking corrective measures.
The BB witnessed a one-time jump of default loans, which happened because of various reasons including new best practice of classification and provisioning rules as well as political instability.
The BB has brought down the net default loans to a moderate level and the non-performing loan are on the wane as a result of improved supervision and close monitoring by the central bank leading to higher level of loan recovery.
The banks which were held responsible for default loans had to take the hit in their balance sheets in terms of higher levels of provisioning.
The BB will not be lenient in this regard in the coming days as well and they (banks) must embrace the culture of disbursing quality loans.
Bangladesh Bank may extend some facilities to the credible borrowers now in trouble, but it will never hesitate to take stern measures against the bad borrowers.
-With New Age input