Integrated policy coordination crucial to curb inflation: Prof Bidisha

Fiscal policy and the national budget are critical instruments for curbing inflation, though they cannot solve the problem in isolation, according to Professor Sayema Haque Bidisha of the Economics Department at Dhaka University.

While noting that the budget attempts to offer minor relief by reducing source taxes on several essential commodities, Prof Bidisha characterised the initiative as a marginal effort in the broader context of inflation management.

Nevertheless, she expressed hope that these measures would yield some positive adjustments to inflationary pressures.

"Alongside these source tax cuts, initiatives have been taken to reduce customs duties and various other taxes in certain areas, which could provide overall structural support," Prof Bidisha observed.

"Concurrently, there is an emphasis on incentivising domestic production to bolster local food and agricultural procurement – steps that bear a direct, positive correlation with inflation management," she added.

The economist highlighted a potential contradiction in the government's fiscal strategy, warning that the overall scale of the budget could counteract its micro-level relief measures.

"A crucial consideration here is the total fiscal outlay. If the budget is ultimately expansionary, its macroeconomic impact could diverge from its stated goals," she noted.

She said, "While we see positive target adjustments in specific sectors, an expansionary budget often runs counter to inflation-reduction targets. This dynamic will require close monitoring."

Turning to monetary policy, Prof Bidisha emphasised the need to monitor potential changes to the policy repo rate, which has remained unchanged at nearly 10% for an extended period.

She pointed out that there is growing pressure – particularly from the business community keen on lowering the cost of doing business – to revise this rate downward, making it a critical variable in the current economic landscape.

Prof Bidisha also underscored the critical role of robust market governance.

She observed that structural inefficiencies often allow intermediaries and middlemen to hike prices far beyond any justifiable increase triggered by budgetary adjustments. Consequently, she argued, an efficient and well-governed market management system is imperative to protect consumers.

The energy and power sectors present another critical front in the inflation battle. Prof Bidisha called for a deep analysis of required tariff adjustments and their implementation strategies. "Because energy price hikes trigger a domino effect – driving up transportation costs and overall manufacturing overheads. They directly aggravate inflationary pressures."

The Dhaka University professor highlighted the importance of expanding the footprint of the Trading Corporation of Bangladesh (TCB).

"The TCB can play a pivotal role, particularly in shielding low-income urban tracts from price shocks," she said.

"Scaling up its operations and reinforcing social safety net programmes to provide targeted financial cushions would be a highly commendable step."

Ultimately, Prof Bidisha maintained that inflation control cannot be achieved through budget allocations or tax policies alone. "Success hinges on a well-synchronised execution of monetary policy, strict market enforcement, and fiscal strategy."