As Ramadan approaches, government aims to increase imports of raw materials to maintain stable supply of essential goods

The caretaker government and central bank yesterday announced new measures, including a relaxation of import and lending rules for raw material importers, as well as an increase in basic food allowances for cardholders TCB, aimed at curbing the rise in prices of basic necessities as inflation returned to double digits in October.

As part of the measures, the Bangladesh Bank will temporarily waive the letter of credit (LC) margin on essential imports such as edible oil, sugar and chickpeas until Ramadan, in a bid to stabilize price during the next month of fasting.

Additionally, the central bank plans to exempt commodity importers from the 25% exposure limit for a single borrower to strengthen their import capacity.

Following a meeting with Financial and Commercial Advisor Salehuddin Ahmed at the Secretariat yesterday, Bangladesh Bank Governor Dr Ahsan H Mansur told reporters that a circular would be issued in this regard on Sunday (November 10).

Large companies like City Group, Meghna, Bashundhara and TK Group – major importers of edible oil, sugar and wheat – are expected to benefit from these measures, strengthening their capacity to secure necessary imports.

The move comes as food inflation jumped to 12.66% in October from 10.40% in September, taking overall inflation to 10.87%, according to data released yesterday by the Bureau of Bangladesh Statistics (BBS). Non-food inflation slowed slightly, from 9.50% in September to 9.34% in October.

These measures were taken to ease some pressure on households facing high food prices and ensure sufficient supplies of essential goods in the run-up to Ramadan.

Addressing the press conference, Ahsan H Mansur said that the government has also decided to distribute 10 kg rice per family every month through the Trading Corporation of Bangladesh (TCB) and increase the number of rice cards. sale on the open market (OMS). Currently, under the WHO, TCB card holders receive 5 kg of rice every month at a subsidized price.

Planning advisor Wahiduddin Mahmud, among other senior government officials, was present in the meeting chaired by financial advisor Salehuddin Ahmed.

Mansur said: “We left it up to the bank-client relationship to decide whether or not to impose an LC margin on imports. However, it has now been decided that banks will not apply any LC margin until the next Ramadan.

An LC margin is the percentage of the total value of an import transaction that the importer must post as collateral when opening a letter of credit with a bank.

Mansur also said the single borrower exposure limit was a barrier for large companies importing products like edible oil, sugar and wheat. They will therefore be exempt from this limit for the next two to three months.
The single borrower exposure limit is the maximum credit a bank can extend to a borrower to manage risks and maintain financial stability.
“I think the single borrower exposure limit is a crucial criterion and should not be violated. It will be strictly enforced in the future and we will not allow any violation,” the governor said.

The governor also assured that there is no shortage of dollars in banks, stating that anyone can open an import letter of credit for any amount to meet the demand for products daily.

Finance Secretary Md Khairuzzaman Mozumder, present at the briefing, said market surveillance will be strengthened to control prices, with duty cut on key imports like onions, potatoes and l ‘oil.

It takes 12 to 18 months to control inflation

BB Governor Mansur said that even with stricter monitoring, it usually takes 12 to 18 months to control inflation. “We need to be patient; reducing inflation is not a 2-3 month task,” he said.

“International prices have not increased much, remaining between 2 and 3%. Oil and LNG prices are low. These factors, along with the currently stable exchange rates, will help reduce inflation,” a- he declared.

On high rice prices, the governor explained that although rice prices in Bangladesh are relatively higher, they are still lower than many other countries, which has discouraged importers even after the complete removal of rice duties. import.

“Rice prices are high now, but not the highest. Last year, prices were Tk 5-6 higher than the current peak,” he said.

Increasing domestic production is key to reducing inflation

Towfiqul Islam Khan, senior fellow at the Center for Policy Dialogue (CPD), told TBS that the government’s measures to control inflation will boost imports, but stressed the need to increase domestic production, particularly in the agriculture, to help reduce inflation.

He also expressed concern about corporate control of the consumer goods market, linking it to crony capitalism. “To counter this, we need to allow more importers,” Khan said, adding that state-owned banks can play a role in encouraging new importers.

Inflation returns to double digits

Food inflation jumped to 12.66 per cent in October, bringing headline inflation into double digits at 10.87 per cent, according to data released by the Bangladesh Bureau of Statistics (BBS) yesterday.

Food inflation had earlier peaked at 14.10% in July, after the fall of the Awami League government, before falling to 11.36% in August and 10.40% in September.

General inflation also hit a 13-year high of 11.66% in July, followed by a slight decline to 10.49% in August and 9.92% in September.

Meanwhile, non-food inflation slowed to 9.34% in October from 9.50% in the previous month.

Reasons behind high inflation

At the secretariat press conference, Ahsan H Mansur attributed the rise in inflation in October to several factors, including supply chain disruptions caused by floods leading to rise in egg prices and loss fish stocks.

Additionally, wage hikes following the July-August protests contributed to rising costs, the BB governor said.

Inflation indicators were manipulated by the previous government since July, which is no longer the case today. As a result, inflation has jumped and is expected to remain high for a few months, he said.

Criticizing the previous government’s decision to fix the exchange rate at Tk85, which he said fueled inflation for 5-7 years. “It will take some time for inflation to calm down,” Mansur added.

According to BBS data, inflation rates have increased in both urban and rural areas. In cities, headline inflation rose to 10.44 percent from 9.83 percent in September. In rural areas, inflation increased from 10.15% to 11.26%.

Food inflation in urban areas stood at 10.53 percent in October, while it was higher in rural areas at 12.75 percent.

Wage growth remained below inflation, with national wages increasing by 0.06% to 8.07%.

Experts speak out to curb inflation

Zaid Bakht, former research director at the Bangladesh Institute of Development Studies (BIDS), told TBS: “Even though the government has managed to curb demand for raw materials, it has struggled to stabilize supply, which led to an increase in inflation.

The economist suggested reducing tariffs to boost imports and improving the supply chain to ease food inflation.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, said the Bangladesh Bank’s restrictive monetary policy and high policy rate, now at 10 per cent, aims to curb inflation-induced inflation. request.

“However, inflation in Bangladesh is not solely demand-driven; structural issues such as inefficient market systems and supply constraints also play a crucial role,” he said.

Currently, food prices are increasing even in the absence of clear reasons, indicating inefficiencies, the economist added.

He said monetary policies must be coordinated with fiscal measures and market reforms for effective control of inflation.

Keeping interest rates high for too long could harm private sector borrowing and economic growth, Mujeri warned.