Dhaka, Bangladesh (BBN) – The central bank of Bangladesh is likely to continue maintaining a tight monetary policy to defuse inflationary pressures on the economy, the Citigroup has said.

” … While both the policy rates and the cash-reserve ratio have been raised over the last year; we expect the Bangladesh Bank (BB) to continue to maintain a tight monetary stance in a bid to neutralize inflationary pressures,” the US-based financial services group said last week.

In its Asia Macro and Strategy Outlook, the Citigroup said measures could also aim at discouraging credit expansion to ‘unproductive, speculative activity’.

“This could be done through shorter-term instruments like statuary liquidity ratio (SLR) and cash reserve requirement (CRR); but explicit rate hikes could also be on the cards if inflation continues to surprise on the upside,” the report added.

“The BB has taken measures to wind down inflationary pressures on the economy but it will take more time to get the results,” a central bank official said on Saturday.

The central bank expects the inflationary pressures to ease in the upcoming months following the policy intervention, he added.

Under the measures, the BB hiked the cash reserve requirement (CRR) by five basis points to 6.0 per cent for banks on December 1 to curb inflationary pressure.

The new CRR will be effective from mid-December this year, a central bank announcement said.

On August 19 last, the central bank also increased its policy interest rate by 1.0 percentage point aiming to contain inflation.

The interest rate on repurchase agreement (repo) was re-fixed at 5.50 per cent on August 19, from 4.50 per cent. Reverse repo rate increased to 3.50 per cent, from 2.50 per cent.

The Bangladesh Taka (BDT) is likely to continue along its depreciating trend, with the need to maintain export competitiveness being a priority, the Citigroup said, adding that the BB would likely adopt a proactive policy stance as prices remain firm.

The report said a continued uptrend in investment growth, particularly in the power sector, would help support gross domestic product (GDP) at 6.0 per cent-plus levels in FY11 and FY12.

The Citigroup also said export growth could see a moderation in pace as minimum wage revisions come into play. “New power purchase agreements may add fiscal strain, but other buffers would prevent slippage to the headline deficit,” it noted.

BBN/SI/AD-05Dec10-10:02 am (BST)