Bangladesh Govt to ease commodity imports as food inflation soars to 12.66%
As part of these measures, the Bangladesh Bank will temporarily remove the letter of credit (LC) margin on essential imports such as edible oil, sugar, and chickpeas until Ramadan, aiming to stabilise prices during the upcoming month of fasting.
Additionally, the central bank plans to exempt commodity importers from the 25% single-borrower exposure limit to enhance their import capacity.
Following a meeting with Finance and Commerce Adviser Salehuddin Ahmed at the Secretariat yesterday, Bangladesh Bank Governor Dr Ahsan H Mansur told reporters that a circular will be issued in this regard on Sunday (10 November).
Large corporate houses like City Group, Meghna, Bashundhara, and TK Group – major importers of edible oil, sugar, and wheat – are expected to benefit from these measures, enhancing their capacity to secure necessary imports.
The decision comes as food inflation surged to 12.66% in October, up from 10.40% in September, which drove overall inflation to 10.87%, according to data released by the Bangladesh Bureau of Statistics (BBS) yesterday. Non-food inflation showed a slight easing, declining from 9.50% in September to 9.34% in October.
These measures were taken to relieve some pressure on households struggling with high food prices and ensure adequate supplies of essential goods as Ramadan approaches.
At the press briefing, Ahsan H Mansur said the government has also decided to distribute 10kg of rice per family each month through the Trading Corporation of Bangladesh (TCB) and increase the number of Open Market Sales (OMS) cards. Currently, under OMS, TCB cardholders receive 5kg of rice at a subsidised price every month.
Planning Adviser Wahiduddin Mahmud among other senior government officials was present in the meeting chaired by Finance Adviser Salehuddin Ahmed.
Mansur said, “We left it to the bank-customer relationship to decide whether to impose an LC margin on imports. However, it has now been decided that banks will not apply any LC margin until next Ramadan.”
An LC margin is the percentage of the total value of an import transaction that the importer must deposit as collateral when opening a letter of credit with a bank.
Mansur also said the single-borrower exposure limit has been a barrier for large corporations importing goods like edible oil, sugar, and wheat. Hence, they will 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 one borrower to manage risk and maintain financial stability.
“I believe the single-borrower exposure limit is a crucial criterion and should not be violated. It will be enforced strictly in the future, and we will not allow any violations,” the governor said.
The governor also assured there is no dollar shortage in banks, stating that anyone can open an import LC for any amount to meet the demand for daily commodities.
Finance Secretary Md Khairuzzaman Mozumder, present at the briefing, said that market monitoring will be strengthened to control prices, with reduced duties on key imports like onions, potatoes, and oil.
It takes 12-18 months to control inflation
BB Governor Mansur said that even with stricter monitoring, it typically takes 12-18 months to control inflation. “We must be patient; reducing inflation is not a 2-3 month task,” he said.
“International prices have not risen much, staying between 2%-3%. Oil and LNG prices are low. These factors, along with currently stable exchange rates, will help reduce inflation,” he said.
Regarding the high prices of rice, the governor explained that although rice prices in Bangladesh are relatively higher, they are still lower than in many other countries, which has discouraged importers even after the full removal of the import duty.
“Rice prices are high now, but not the highest. Last year, prices were Tk5-6 higher than the current peak,” he said.
Increased domestic production stressed to reduce inflation
Towfiqul Islam Khan, a senior research fellow at the Centre 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 agriculture, to help reduce inflation.
He also expressed concern over large corporations’ 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 fostering new importers.
Inflation jumps back to double-digit
Food inflation surged to 12.66% in October, pushing overall inflation back to double digits at 10.87%, according to data released by the Bangladesh Bureau of Statistics (BBS) yesterday.
Food inflation previously peaked at 14.10% in July, after the fall of the Awami League government before cooling down to 11.36% in August and 10.40% in September.
General inflation also reached a 13-year high of 11.66% in July followed by a slight decrease to 10.49% in August and 9.92% in September.
Meanwhile, non-food inflation eased to 9.34% in October from 9.50% the previous month.
Reasons behind high inflation
At the secretariat press briefing, Ahsan H Mansur attributed the October inflation increase to multiple factors, including supply chain disruptions caused by floods leading to higher egg prices and the loss of fish stocks.
Additionally, wage hikes from the July-August protests contributed to the rise in costs, the BB governor said.
Inflation indicators were manipulated by the previous government since July, which is not the case now. As a result, inflation has surged and is likely to stay elevated for a few months, he said.
Criticising the previous government’s decision to peg the exchange rate at Tk85, which, he said, fueled inflation for 5-7 years. “It will take some time for inflation to cool off,” Mansur added.
According to BBS data, Inflation rates rose in both urban and rural areas. In cities, overall inflation increased to 10.44%, up from 9.83% in September. In rural areas, inflation rose to 11.26% from 10.15%.
Food inflation in urban areas stood at 10.53% in October, while it was higher in rural areas at 12.75%.
Wage growth remained below inflation, with national wages rising by 0.06% to 8.07%.
Experts weigh in on curbing inflation
Zaid Bakht, former research director at the Bangladesh Institute of Development Studies (BIDS), told TBS, “Although the government managed to curb commodity demand, it has struggled to stabilise supply, causing inflation to increase.”
The economist suggested reducing tariffs to boost imports and improving the supply chain to mitigate food inflation.
Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development, said that Bangladesh Bank’s contractionary monetary policy and high policy rate, now at 10%, aim to curb demand-driven inflation.
“However, inflation in Bangladesh is not solely demand-driven; structural issues like inefficient market systems and supply constraints also play critical roles,” he said.
Currently, food prices are rising even in the absence of clear reasons, indicating inefficiencies, added the economist.
He said monetary policies must be coordinated with fiscal measures and market reforms for effective inflation control.
Maintaining high interest rates for too long could harm private-sector borrowing and economic growth, Mujeri warned.
Source Link : https://www.tbsnews.net/bangladesh/govt-ease-commodity-imports-food-inflation-soars-1266-987631
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