Taming the Inflation: Let the Orthodox Monetary Policy Work
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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.
