Heavy govt borrowing from BB to fuel inflation

The government’s continuous borrowing from the Bangladesh Bank will create inflationary pressure which is already soaring, the Centre for Policy Dialogue (CPD) has said.

“Continuing borrowing from the central bank will surely create a higher flow of money supply and hence, result in inflationary pressure,” said CPD Executive Director Fahmida Khatun at a media briefing on Saturday. The leading think tank organised the briefing at its office in the capital.

The continuous borrowing from the central bank further deteriorates the macroeconomic discipline, Fahmida added.

The government borrowed Tk 82,056.91 crore from the banking sector in the first 10 months (July-April) of this fiscal year. Of this, Tk 74,393.08 crore came from the central bank, the banking regulator’s data shows. The government borrowed only Tk 7,663.83 crore from commercial banks.

Government borrowing during these 10 months was 138.02 per cent higher than that in the same period of the last fiscal year.

The government’s borrowing target from the banking sector was set at Tk 111,608 crore in the national budget for FY23. But it has already met 73.52 per cent of the target in just 10 months. Fahmida said there is a limit to borrowing from the central bank in other countries but “we have no limit in our country”.

The CPD said borrowing from the banking regulator may have created gross new money to the tune of Tk 383,124 crore.

In July last year, point-to-point inflation was 7.48 per cent, and it jumped to 9.52 per cent the next month, which was the highest in the last decade.

The inflation rate slightly declined to 9.24 per cent in April this year after the government took various measures to control imports, increase supplementary duty on some non-essential products, raise the letter of credit (LC) margin, and hike consumer loan rates.

The CPD said the market-aligned exchange rates must be carefully monitored.

It said the gap between the exchange rates has already narrowed and if the rate were market-based, the USD rate would be between Tk 105 and Tk 116, which is not much different from the current rate.