BB raises key policy rates

Star (September 06, 2011)

Bangladesh Bank has increased the policy rates for the fifth time in the last 13 months as non-food inflation jumped in the last few months.
The central bank yesterday raised the repurchase rate, at which it lends to commercial banks, to 7.25 percent from 6.75 percent.
The reverse repurchase rate was increased to 5.25 percent from 4.75 percent. The changes came into effect yesterday.
“Inflation may increase further in September,” BB governor Atiur Rahman told The Daily Star yesterday. “We are using our policy tools to make credit costly and control inflation.”
The inflation decreased 0.03 percentage points in June compared to that in May but in July it again rose 0.79 percentage points to 10.96 percent.
The most alarming thing is that non-food inflation rate has been increasing extremely over the last few months.
It increased about 1 percentage point in June and 0.75 percentage point in July.
Non-food inflation will go up in August and September also, said a BB official. People spent more on the eve of Eid that raises the probability of further increase in such inflation.
The central bank took several measures in the last one and a half years to cut credit growth. The growth is still high although it came down to some extent.
Private sector credit growth at the end of June was 25.84 percent. A few months back it was over 29 percent. The Monetary Policy Statement announced by the BB in July fixed a target of bringing down private sector credit growth to 18 percent by next June.
The central bank, which has raised interest rates by 275 basis points since August last year, said on July 27 that it plans to persist with a policy of restraining credit growth in current fiscal year although curbing inflation to the government's targeted level may be challenging.