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Global supply chain disruptions and price hikes amid aggressive policy rate spike by the US Fed were seriously affecting the country’s economy, the Bangladesh Bank said on Wednesday.
Exchange rate pressures due to high import prices and subsequent balance of payments adversities are prominent (in the domestic economy), the central bank said in its quarterly financial review report, fearing further economic shocks.
The publication acknowledged multifaceted challenges that have emerged as a result of the ongoing Russia-Ukraine war and its spillover effects on commodity and financial markets, trade flows, and exchange rates.
As such, the central bank is extending necessary policy measures to contain demand while supporting supply-and production-enhancing activities in tackling the ongoing inflationary and exchange rate pressures.
The quarterly, prepared for the period of April-June 2022, showed headline consumer price index inflation (point to point) increased to 7.56% in June 2022, up 1.34 percentage points from March 2022, with a faster rise in food inflation, driven mainly by the pass-through of global commodity prices and a notable depreciation of the Taka.
The rise in inflation, particularly food inflation, hit rural areas hard, with a disproportionately higher impact on lower-income groups, the quarterly review noted.
Elevated global commodity and energy prices created significant challenges to the external sector during last fiscal year by pushing import payments up, which outstripped the rise in export earnings, it also noted.
The latest publication also said that growing trade deficit, with moderate remittance inflows, resulted in a surge in the current-account deficit to $ 18.7 billion in FY22, surpassing the surplus in the capital and financial account.
To limit excessive exchange rate volatility, the Bangladesh Bank intervened in the forex market with net sales of around $7.4 billion in FY22.
Liquidity in the banking system maintained mostly a downward trend throughout the fiscal year, mainly because of a partially sterilized intervention in the forex market coupled with a rising growth of private-sector credits and a declining deposit growth.
As a result, the forex reserves declined to $41.8 billion at the end of FY22 from $46.4 billion at the end of FY21.
Among the indicators related to the performance of the banking sector, a rise in non-performing loans and provisioning shortfall on the one hand and advancement in profitability and maintaining adequate liquidity on the other reflected a mixed performance of the industry at the end of FY22.
The capital market witnessed some volatility with a downtrend in Q4FY22, reflected in a downturn in price indices, market capitalization, and turnover.
The weak performance can be attributed to a downturn in the share-price index in emerging market economies, commodity-price instability in both global and domestic markets, sharp depreciation of Taka against the US dollar, and fiscal tightening in advanced economies.
Compounding adverse effects of elevated global commodity and energy prices, recent upward adjustment of petroleum and fertilizer prices on the domestic market, and a significant depreciation of Taka against the dollar could intensify the cost-push shocks to the economy.
Moreover, several measures to limit unnecessary and luxury imports, rationing power supply, and austerity policy of the government might provide some respite in terms of containing local demand.
(DT)
