Non-populist view on Bangladesh Bank’s role?

In this article published in the Daily Star, Mr. Ahsan Mansur suggests the Central Bank, Bangladesh Bank, to be more aggressive in implementing its role to control inflation through monetary tightening. He suggests to take lesson from the respective central banks of China and India on this. A really good article to read (and know a lot).

My comments:

Although significantly higher growth (29.1% in March 2011) of private sector credit is a matter of concern now, yet I am just wondering whether the comparison of the Bangladesh economy with those of India and China is valid because of their differences in the GNI level and GDP growth level. Shouldn’t we compare these economies at least at the similar GNI level because still we are growing by just over 6.0% per annum with this high credit growth? Shouldn’t we consider the credit quality and productivity of credit before commenting grossly on the negative impact of higher credit growth?

Again, as inflation is dominated by food inflation, the questions remains on how much room are left for the monetary instruments to control the overall inflation. As we meet with business leaders as well as bankers, they all talk about the liquidity crisis in the money market. And do we really think that around 11.0% inflation is a real threat for an economy like us? What is the linkage between private sector credit growth (PSCG) and inflation in Bangladesh? For your information:

Fiscal year	PSCG (%)	Inflation (%)	Food inflation (%)
2006	18.1	7.2	7.8
2007	15.0	7.2	8.1
2008	24.9	9.9	12.3
2009	14.6	6.7	7.2
2010	24.2	7.3	8.5
2011 (March)	29.1	8.4	10.7

By suggesting adoption of demand management policies, did we already agree with the notion that the current inflationary period is the reason of demand side problems, rather supply side? Because non-food inflation is on a declining trend ever since the Bangladesh economy is facing higher food inflation. Does it mean that peoples’ demand for food has been increasing over the period because their access to credit (or, their income level) improved (and demand for non-food commodities declines)? Does it suit with the great ‘Engel’s law’?

About the renewed role of the central bank, please read this working paper of BIS.