A week after Finance Minister AHM Mustafa Kamal had said inflation would cool down in the next two months, he reversed yesterday to say inflation would rise.
His earlier projection was based on one month's figure that showed inflation had slightly fallen to 7.48%. But on Wednesday the finance minister had to make a new projection after a record hike in fuel price that has affected prices across the board.
"Prices of all commodities increase as soon as the oil price goes up. We will continue our efforts to bring down the inflation rate," the minister told The Business Standard at his office on Wednesday, discarding the earlier projection by his ministry of a fall in inflation by the end of 2023.
"The government is thinking about taking measures for the poor. A decision will be taken after discussing with the prime minister," he said.
Stating that if the price of fuel oil falls in the international market, the price will also be reduced in the country, the finance minister said Bangladesh would adjust oil prices in line with international prices the same way that India does.
An additional secretary of the finance department involved in the impact assessment of the fuel price hike, on condition of anonymity, told TBS that the August inflation rate may cross 8% due to the increase in fuel prices, which will gradually come down in the following months.
However, the 12-month average inflation rate will remain above 7%.
He said in theory it would take inflation nine months to become "neutral". As a result, the increase in fuel oil prices will have an impact on product prices for the next nine months.
He, however, warned that if subsidies on gas, electricity and fertilisers are withdrawn, inflation will rise to 9%.
"The increase in the price of diesel and kerosene last November had no effect on inflation. Before the new fuel price hike, our projection was that the 12-month average inflation would be in the range of 6.5%," he said.
Domestic inflation of the country is expected to peak in the short term (third quarter of 2022) and abate later towards the end of 2023 with the projected easing of global commodity prices, according to a finance ministry report.
'Dollar crisis the main problem'
On the dollar crisis, AHM Mustafa Kamal said, "The dollar rate is now in an unstable state everywhere in the world. Those who are engaged in war and who are provoking the war are facing the same consequences.
"We are trying to keep the forex market stable," he added.
Replying to a query about the removal of treasury chiefs of six banks, Kamal said, "There is a limit to how much dollars can be kept at banks. If any bank reserves dollars beyond the limit, it must have done so for illegal business purposes."
An additional secretary related to the Ministry of Finance told TBS that the dollar crisis was the main problem in the country's economy at the moment.
Inflation is also increasing due to the increase in commodity prices in the international market, a consequence of the dollar crisis.
Therefore, the government is taking various steps to reduce domestic demand.
"The government is no longer thinking of achieving high growth. This year's budget estimates 7.5% growth, but it may not be achieved due to reduced domestic demand. However, in the current situation, even if the growth is equal to or slightly less than the last financial year, it will be very satisfactory," said the official.
On 8 August, the Bangladesh Bank ordered the removal of treasury chiefs of six banks after finding evidence against them of making higher profits in trading dollars.
According to Bangladesh Bank sources, the banks include Dutch Bangla Bank, Brac Bank, City Bank, Prime Bank, and Southeast Bank and multinational bank Standard Chartered Bank.
The country faced a massive dollar crisis as remittance dwindled and imports increased in comparison to exports in the post-Covid period. The price of the dollar hit a record Tk119 in the open market on Tuesday.
In the interbank currency market, the US dollar was being traded at Tk95 on Monday.
To control the manipulation of dollars in the open market, till 2 August, 80 money changers were raided and show cause notices were issued as irregularities were found in 42.
The Bangladesh Bank also announced the suspension of five money changers' licences.