Bangladesh's central bank said it would stick to a tight monetary policy to combat rising inflation, despite fears this would choke off credit to the private sector, slowing growth.
"Monetary policy in 2006-07 fiscal (July-June) will continue to target the containment of annual average CPI (consumer price index) inflation within 7.0 percent, with possibility of some downward revision for the first half of 2007 based on review of development in the second half of 2006," Bangladesh Bank, the central bank, said in a statement obtained on Saturday.
Business leaders warned the central bank's stance had driven up interest rates and would hurt trade and domestic businesses, but the central bank said inflation must fall. Annual inflation hit 7.46 percent in April, up from 6.17 percent a month earlier, officials said.
"A persistent rise in consumer prices is causing public disquiet in Bangladesh and neighbouring countries ...It will clearly be important to continue for the time being the tightened bias of monetary policy towards demand containment," the bank said. Soaring prices for oil and other commodities in international markets were largely responsible for rising prices, it said, but business representatives called for some relief - as lending rates hit 16 percent, up from 12 percent a year ago.
"It is not possible to contain inflation just through a contractionary monetary policy," Qazi Kholiquzzaman Ahmed, the president of Bangladesh Economic Association said.
The central bank, which sets policy through repurchase operations in the money market and does not have a published policy rate, said it feared that external factors beyond its control would continue an upward trend in inflation.
"The high and rising global prices of oil and other commodities are particularly challenging for countries like Bangladesh that are mainly processors/users rather than producers of primary commodities," the central bank said.
"Depreciation of the taka associated with balance of payment pressure from rising import prices has also to some extent added to the uptrend in consumer prices," it said.
Private sector credit growth last year was 17 percent but the central bank said it was aiming for 13 percent this year - despite criticism from business leaders.
"To follow the contractionary policy means squeezing credit to the private sector which ultimately will increase the cost of funds," said Mir Nasir Hossain, president of the Federation of Bangladesh Chambers of Commerce and Industry.
Higher interest rates would lessen Bangladesh's export competitiveness, he said.
The Bangladeshi economy grew 6.7 percent in the year to June 2006, up from 5.4 percent in the previous year, central bank officials said.
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