Taming the Inflation: Let the Orthodox Monetary Policy Work

May 15, 2024

By  Ahsan H. Mansur, Ashikur Rahman

Bangladesh has been experiencing rising inflationary pressure for at least the last 18 months. In fact, monthly inflation reached as high as 9.97% in (May 2023) and still remains stubbornly high at 9.86% in January of 2024. Uncontrolled inflationary pressure remains one of the most problematic phenomena. Lessons from economic history vividly demonstrates that high inflation can hinder macro-economic stability, erode competitiveness of local entrepreneurs, demotivate investment decisions and accentuates income inequality by substantially reducing the purchasing power of fixed-income and financially weak households. 

Thus, it is not surprising that mature monetary regimes across advanced economies commit to an inflation targeting framework where the primary agenda is to keep inflation at about 2%   annually. This also explains why recently central banks across advanced economies have responded aggressively to tighten the money supply and raise the interest rate, which translated into lowering the inflationary pressure in their respective economies. Interestingly, this also creates a useful context for evaluating the effectiveness of our monetary policy that has been largely ineffective in controlling inflation. 

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Ahsan H. Mansur

Ahsan H. Mansur is the Executive Director of the Policy Research Institute of Bangladesh. In his long career, he served the International Monetary Fund (IMF), working in important functional departments (Fiscal Affairs and Policy Review and Development departments) and area departments (Middle East and Central Asia and Asian departments) of the IMF. He also served as the IMF Senior Resident Representative to Pakistan during 1998-01 and as the Fiscal Advisor to the Minister of Finance, Government of Bangladesh (1989-91). He completed his PhD in Economics from University of Western Ontario. He has published extensively in various prestigious journals (including Econometrica, Journal of Economic Theory, and IMF Staff Papers), edited books on special economic topics and in the IMF Occasional Paper and Working Paper series.

Ashikur Rahman

Dr Ashikur Rahman is a Senior Economist at the Policy Research Institute [PRI] of Bangladesh and Visiting Research Fellow at the Bangladesh Institute of Governance Development [BIGD]. At present, his work empirically examines the nature of concentration of political power and its role in shaping economic and political outcomes within the political arena of Bangladesh. Mr Rahman is also specialized in undertaking microeconomic program evaluation and institutional diagnosis.