FROM PAGE B1

commercial banks borrow from the central bank -- several times over the past two years.

As such, the policy rate which stood at just 5 percent in May of 2022 gradually increased to 10 percent by the end of 2024.

However, Ashikur Rahman, principal economist at the Policy Research Institute (PRI) of Bangladesh, said the level of inflation in the country is still very high.

This is causing hardships for people with fixed incomes or those living below the poverty line, he added.

However, Mohammad Lutfor Rahman, a professor of economics at Jahangirnagar University, said this elevated inflation impacts all classes.

“People are struggling as their real income and wages have failed to keep pace with rising prices, eroding their purchasing power,” he added. “Food prices in Bangladesh are higher than those in neighbouring countries.”

According to private think-tank, Research and Policy Integration for Development (RAPID), inflation has pushed as many as 78 lakh people into poverty over the past two years.

Of them, around 38 lakh have fallen into extreme poverty while another 1 crore are at risk of becoming poor.

Regarding the slight decrease in price pressures in December, Lutfor credited seasonal factors, such as the abundant winter vegetables hitting the market.

He said tariff cuts on essential imported commodities may also have contributed to the decline.

In recent months, the revenue board has withdrawn import duties and other taxes on essential products, including onions, potatoes and eggs.

However, Ashikur said improvements in supply-chain dynamics after the political changeover in August last year also contributed to reducing the food inflation.

The monthly point-to-point inflation rate remained high in fiscal 2024-25, especially after the political turmoil in July, changeover in August and repeated flooding in the north-eastern regions that same month.

“These shocks have undermined the contractionary monetary policy,” he added.

The PRI principal economist suggested the Bangladesh Bank should remain committed to implementing a contractionary monetary policy while the interim government must ensure that future supply chain disruptions are avoided.

Meanwhile, Lutfor expressed concern over the government’s move to increase the value-added tax (VAT) on 43 goods and services as it could reignite overall inflation.

Although food inflation is declining, implementing the interim government’s plan to hike VAT would likely fuel non-food inflation, he said.

The interim government’s council of advisers approved a plan to impose a uniform 15 percent VAT on various items, including medicine, restaurant services, residential hotels, sweets, biscuits and branded clothing.

The VAT hike is said to be linked to the conditions of the International Monetary Fund for its ongoing $4.7 billion loan programme for Bangladesh.

Besides, the National Board of Revenue needs to immediately increase its collection of taxes by an additional Tk 12,000 crore.

The revenue authority and Finance Adviser Salehuddin Ahmed justified the move arguing that it would not fuel inflation as tariffs on essential goods were already cut at the import stage.

Lutfor criticised this claim, saying that as an indirect tax, higher VAT would affect people from all walks of life.

He argued that the government’s focus should be on expanding income tax collection rather than solely imposing a VAT hike.