A Report of Macroeconomics

Dapartment of Marketing University of Dhaka

A Report On

Inflation in Bangladesh

Su(mitted to

Dr. Samir Kumar Sheel Associate Professor, Department of Marketing, University of Dhaka.

Su(mitted (y
Md. Samsul Arifin Noah s Ark !atch" #$th %oll" &' Department of Marketing, University of Dhaka

)irst of all * +ould like to thank the Almighty for giving me the strength, and the aptitude to complete this report +ithin due time. * am deeply inde(ted to our course teacher Dr. Samir Kumar Sheel for assigning us such an important topic named Inflation in Bangladesh. * also e,press the depth of my appreciation to our honora(le course teacher for his suggestion and guidelines, +hich helped us in completing this report.

Executive Summary
*nflation is one of the ma-or factors of macro economics. .osing the purchasing po+er and increasing the cost of production indicates the high rate of inflation. *nflation has (oth positive / negative effects depending on the situation. *f +e analy0e the economic condition of our country, it is clear that inflation is higher in recent years comparing +ith past decade. *nflation fluctuates all the time (ecause of the fluctuation of the money supply. !ut in recent years, +e came to kno+ that international affairs are influencing to increase the inflation rate. 1onsistent (udget deficit and e,change rate deteriorate the economic gro+th +hich directly relates to inflation.

Inflation in Bangladesh
Introduction
2he rate at +hich the general level of prices for goods and services is rising, and, su(se3uently, purchasing po+er is falling, is called inflation.

Definition
4Too much money in circulation causes the money to lose value 56 this is the true meaning of inflation. 2he popular opinion a(out the costs of inflation is that inflation makes everyone +orse off (y reducing the purchasing po+er of incomes, eroding living standards and adding, in many +ays, to life s uncertainties. *n economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. *nflation refers to a rise in prices that causes the purchasing po+er of a nation to fall. *nflation is a normal economic development as long as the annual percentage remains lo+7 once the percentage rises over a pre6 determined level, it is considered an inflation crisis. *n another +ord 4Inflation means that your money on!t "uy as much today as you could yesterday5.

Definition prices)

of

Inflation

rate

(consumer

2his entry furnishes the annual percent change in consumer prices compared +ith the previous year s consumer prices. 2he inflation rate is the percentage rate of change of a price inde, over time.

Types of Inflation
2here are t+o primary types of inflation" 8i9 demand6pull inflation 8ii9 and cost6push inflation. Understanding +hich type of inflation is occurring at any given point in time is important if policymakers +ant to respond appropriately. 2he t+o types of inflation are not mutually e,clusive, so it is possi(le for (oth to occur simultaneously. .eft untreated, inflation can cause a +age6price spiral or even hyperinflation.

#emand$pull inflation% Demand6pull inflation occurs +hen spending on goods and services drives up prices. Demand6pull inflation is fueled (y income, so efforts to stop it involve reducing consumer:s income or giving consumers more incentive to save than to spend. Demand6pull inflation persists if the pu(lic or foreign sector reinforces it. .o+ ta,es and profligate government spending e,acer(ate demand6pull inflation. A failure of the central (ank to reign in the money supply also makes the demand6pull inflation +orse. Demand6pull inflation can spread across (orders as +ell. 1hina and *ndia:s economic gro+th not only puts pressure on prices in these countries (ut also on prices +orld+ide as the demand for imports increase. *f government spending is financed (y printing currency or (y the central (ank moneti0ing the de(t, demand6pull inflation can (ecome hyperinflation. Hyperinflation is defined as annual inflation of #;;< or greater. All cases of hyperinflation have (een accompanied (y the government or central (ank issuing too much money. &ost$push inflation% 1ost6push inflation occurs +hen the price of inputs increases. !usinesses must ac3uire ra+ materials, la(or, energy, and capital to operate. *f the price of these +ere to rise, it +ould reduce the a(ility of producers to generate output (ecause their unit cost of production had increased. *f these increases in production cost are relatively large and pervasive, the effect is to simultaneously create higher inflation, reduce real =DP, and increase the unemployment rate. >ou might recogni0e this com(ination (y another name, stagflation. *n the #?@;s, APB1 cut oil production, +hich led to much higher energy prices along +ith dou(le6 digit inflation and unemployment. !ecause producers faced higher operating costs, they reduced output. %elative to the demand for their products, the supply decreased, +hich resulted in cost6push inflation. *f cost6push inflation has a (right side, it is the fact that it is self6limiting. 1ost6push inflation is associated +ith decreases in =DP. 2he decreased =DP and resulting high unemployment helps to (ring producer prices (ack do+n. 2he trick to com(ating cost6 push inflation is reali0ing that it is not demand6pull. 2he policy prescription for each is different, and applying the +rong prescription can create more pro(lems than it solves. *t is the unemployment issue that usually spurs policymakers to action. *f they respond to the increased unemployment (y increasing spending, the inflation pro(lem is made +orse. A wage-price spiral can result if the policy responses create more demand for goods and services at the same time that unit costs are rising. !y +ay of analogy, the prescription for a grease fire is different from that of a forest fire. =rease fires are put out (y removing the source of o,ygen, +hile a forest fire is e,tinguished +ith +ater. *f you pour +ater on a grease fire, then things only get +orse. 2his is +hat happened in the #?@;s. *nstead of letting cost6push inflation run its natural course, the )ed poured money on it, and inflation +orsened.

Effect on the economy

Effects of Inflation

'eneral

(egative

)ositive

'eneral Effect An increase in the general level of prices implies a decrease in the purchasing po+er of the currency. 2hat is, +hen the general level of prices rises, each monetary unit (uys fe+er goods and services. *ncreases in the price level 8inflation9 erode the real value of money 8the functional currency9 and other items +ith an underlying monetary nature 8e.g. loans and (onds9. )or e,ample if one takes a loan +here the stated interest rate is $< and the inflation rate is at '<, the real interest rate that one is paying for the loan is '<. *t +ould also hold true that if one had a loan at a fi,ed interest rate of $< and the inflation rate -umped to C;< one +ould have a real interest rate of #&<. (egative Effect Digh or unpredicta(le inflation rates are regarded as harmful to an overall economy. 2hey add inefficiencies in the market, and make it difficult for companies to (udget or plan longterm. *nflation can act as a drag on productivity as companies are forced to shift resources a+ay from products and services in order to focus on profit and losses from currency inflation. Uncertainty a(out the future purchasing po+er of money discourages investment and saving and inflation can impose hidden ta, increases. *n case of international trade, EDigher inflation in one economy than another +ill cause the first economy s e,ports to (ecome more e,pensive and affect the (alance of trade.

)ositive Effect Positive effects include ensuring central (anks can ad-ust nominal interest rates 8intended to mitigate recessions9, and encouraging investment in non6monetary capital pro-ects. *t puts impact on .a(or6market ad-ustments, %oom to maneuver, Mundell6 2o(in effect, *nsta(ility +ith Deflation etc.

Causes behind inflation

*n developing countries, in contrast, inflation is not a purely monetary phenomenon, (ut is often linked +ith fiscal im(alances and deficiencies in sound internal economic policies. !eside, factors typically related to fiscal im(alances such as higher money gro+th and e,change rate depreciation arising from a (alance of payments crisis dominate the inflation process in developing countries. 2here +ere different schools of thought as to the causes of inflation. Most can (e divided into t+o (road areas" *+ ,uality theories of inflation+ -+ ,uantity theories of inflation+ 2he 3uality theory of inflation rests on the e,pectation of a seller accepting currency to (e a(le to e,change that currency at a later time for goods that are desira(le as a (uyer. 2he 3uantity theory of inflation rests on the 3uantity e3uation of money that relates the money supply, its velocity, and the nominal value of e,changes. Adam Smith and David Dume proposed a 3uantity theory of inflation for money, and a 3uality theory of inflation for production+ After analy0ing t+o theories of causes +e have got here some physical causes to face +hich cover (oth theories depending on a num(er of factors. 2hese are given (elo+6 Excess of money *nflation can happen +hen governments print an e,cess of money to deal +ith a crisis. As a result, prices end up rising at an e,tremely high speed to keep up +ith the currency surplus. 2his is called the demand6pull, in +hich prices are forced up+ards (ecause of a high demand. Rise in production cost Another common cause of inflation is a rise in production costs, +hich leads to an increase in the price of the final product. )or e,ample, if ra+ materials increase in price, this leads to the cost of production increasing, +hich in turn leads to the company increasing prices to maintain steady profitsF %ising la(or costs can also lead to inflation. As +orkers demand +age increases, companies usually chose to pass on those costs to their customers.

International lending . national de"t *nflation can also (e caused (y international lending and national de(ts. As nations (orro+ money, they have to deal +ith interests, +hich in the end cause prices to rise as a +ay of keeping up +ith their de(ts. A deep drop of the e,change rate can also result in inflation, as governments +ill have to deal +ith differences in the importGe,port level. 'overnment taxes )inally, inflation can (e caused (y federal ta,es put on consumer products such as cigarettes or fuel. As the ta,es rise, suppliers often pass on the (urden to the consumer7 the catch, ho+ever, is that once prices have increased, they rarely go (ack, even if the ta,es are later reduced. /ar Hars are often cause for inflation, as governments must (oth recoup the money spent and repay the funds (orro+ed from the central (ank. Har often affects everything from international trading to la(or costs to product demand, so in the end it al+ays produces a rise in prices.

Causes of inflation in Bangladesh

B1ANAM*S2S, policy makers and multilateral capital donors have different e,planations a(out the causes of inflation in countries like !angladesh. A (rief look at a fe+ of such e,planations merits attention for shaping and re6shaping of appropriate policies to help cur( inflation. Dere (elo+ is a (rief critical overvie+ of such e,planations. #. Increasing food prices in the international mar0et% Ane of the causes of inflation, e,plained as such, relates to food prices in the international market. !angladesh (eing a food importing country, any rise in food prices in the +orld market can push up the domestic prices of those commodities. *n the not too distant past, the prices of essential commodities, like rice, +heat and edi(le oil, increased significantly in the international markets. So, domestic prices of those items shot up phenomenally then. C. Excess demand resulting in demand$pull inflation% 2he link (et+een rising prosperity and inflation is sought to (e proved (y many. Despite all its pro(lems, !angladesh has (een performing +ell, in terms of economic gro+th over the last #; years. *ts gross domestic product 8=DP9 (ase is not small, in

'.

&.

I.

$.

a(solute volume terms. *t is the I;th largest economy in a sample of #@@ countries. Not many developing countries have gro+n faster than !angladesh +ith (igger =DP volumes since the early #??;s. 2hose +ho seek to link inflation and =DP gro+th performance state that the high gro+th rate of =DP and the per capita =DP in particular has led to the creation of e,cess demand in the !angladesh economy. 2his has resulted in a demand6pull inflation. Excessive supply of the money% 2here is the gro+th of money supply that is directly related to the price situation. E*nflation is a monetary phenomenon , so is e,plained (y a good num(er of economists as +ell as some of the donor agencies. *t is, thus, stated to (e caused (y the e,cessive supply of money in the economy. !angladesh !ank has other+ise (een found to (e guided (y the monetarist approach to inflation and that is not +ithout some good reason. *f has (een follo+ing a rather 4cautious5 monetary policy. Many consider it as a pragmatic step. Increasing fuel prices% )uel price is yet another factor that is cited to have a ma-or impact on the domestic price situation. *f the fuel prices go up, that impacts the prices of commodities through t+o ma-or channels" the high prices of fuels lead to high cost for irrigation, +hich raises the cost of agricultural production7 and, high fuel prices increase the cost of transportation, +hich also raises the prices of essential items transported from remote villages to ur(an areas. (on$competitive mar0et forces% 2he non6competitive market features or +hat are stated to (e 4the syndicate5 syndrome Jare other+ise +idely considered as (eing one of the strong factors, igniting price pressures. Dere, argument is made a(out many middle6men, +holesalers and importers acting as syndicates and causing large price hikes, (y making cartels and hoarding essential goods like rice, +heat and edi(le oil. Such cartels do reportedly fi, the prices of these goods, dictate supply in the market, and earn e,cess profits. Other factors% 2here are many other factors (ehind the rising trend of inflation in !angladesh. Such factors contri(ute, in their o+n +ay, to the price6hike of essential items. A detailed analysis of the situation is, thus, called for, in order to help devise a strategy for com(ating inflation effectively.

1ists of Inflation Rate from *22*$-3*3 4ear Inflation Rate 5&onsumer )rice6 K.; '.K '.; 4ear Inflation Rate 5&onsumer )rice6 I.K I.K '.#

#??# #??C #??'

C;;# C;;C C;;'

#??& '.I #??I K.K #??$ @.; #??@ C.$ #??K @.; #??? ?.; C;;; ?.; Source" 8#9 1*A Horld )act(ook. 8C9 !angladesh !ank. 8'9 !angladesh !ureau of Statistics.

C;;& C;;I C;;$ C;;@ C;;K C;;? C;#;

I.$ $.; @.; @.C ?.# K.? I.&

Historical Trend Analysis

2he government introduced policy and institutional reforms encompassing the fiscal, financial, e,change rate, trade and industry, pu(lic resource management and pu(lic enterprise sectors. !ut some of those measures +ere not strongly pursued and some of the intended structural reforms +ere postponed. Monetary control in the initial years had a positive impact on the control of inflation. 2he regarded decision are taken (elo+6 2o increase investi(le funds +ith the (anks, the minimum cash reserve re3uirement and statutory li3uidity re3uirement +ere reduced gradually from K and C' per cent respectively on CI April #??# to I and C; per cent respectively. 2his decision has reduced the inflation rate. *n #??# the lending rate +as #&.?? +hich +as high during #??C (ut then it started to (e reduced at #&.'? 8#??'9 and #C.CC at #??I. Hith the fle,i(le use of the monetary instruments, (road money gro+th 8Money Supply9 +as (rought do+n from high rates of gro+th 8#&.# percent9 in the mid6#??C to #;.$ per cent in Lune #??' to reduce the rate of inflation. *n the year #??I government +as thinking to increase the money supply +hich +as (rought to #$ percent for that reason inflation rate increased. *n the year #??I government +as thinking to increase the total domestic credit +hich +as (rought to #@.$ percent from &.? percent 8#??&9. )or this reason the inflation rate increased. *n the year #??I government li(erali0ed 1redit to the private sectors in fiscal year #??I (y reducing lending rates including those in the three selected

sectors of agriculture, e,ports, and small and cottage *ndustries had to (e restrained due to the rise in price levels. )or this reason inflation rate has increased. Hith a vie+ to ensuring an ade3uate flo+ of finance to productive sectors and to (oosting economic activity, Ban0 rate +as gradually lo+ered from ?.K per cent on '; Lune #??; to I.I per cent on ' March #??& to control the inflation rate. An C& March #??& !angladesh accepted the Article M*** o(ligations of the *nternational Monetary )und, a commitment to declare its currency converti(le for current account transactions and li(erali0e e,change transactions on current account. )oreign e,change controls, +hich had constrained transactions for a long time, +ere lifted for the ma-ority of current account transactions. An inter(ank foreign e,change market has (een esta(lished. 2he e,change rate policy is (eing managed fle,i(ly so as to avoid appreciation of the real e,change rate and to maintain macroeconomic sta(ility. Moderate economic gro+th and modest change in the +age inde, contri(uted to the relatively lo+ rate of inflation 8i.e., lo+er than I per cent9 in #??;6#??&. Digher money supply gro+th and lo+er deposit rate in )>?I contri(uted to the comparatively higher inflation rates in #??I. *n #??$ the lending rate +as #'.&# +hich +ere accelerated to #&.#$ in #???. Supply shortages in the rural areas originating from political insta(ility in )>?$ and disruption due to floods in #??K caused serious shortfall of food and also hampered all other agricultural production, +hich ultimately caused higher inflation rates in #??$, #??K / #???. A lo+er gro+th rate, (ecause of lo+er production and relatively higher depreciation of the e,change rate due to food imports, also contri(uted to the higher inflation rate in the flood affected years. .arger depreciation of the e,change rate has accelerated the inflation rate C.@? 8C;;C9 to &.'K 8C;;&9. B,change rate might have played a significant role in causing inflation in C;;I6C;;$ (ecause of the introduction of fle,i(le e,change rate regime since May C;;'. A higher gro+th of money supply 8#'.K& at C;;& to #?.I# at C;;$9 added a lot to inflation in C;;I6C;;$. *n C;;# the lending rate +as #'.@I +hich +ere lo+ered to #;.?' in C;;I.

 *n C;;#6C;;$ high inflation in food 8more than I percent9 sector at international market +as so much responsi(le for the fluctuation of inflation. 2ypically import occupies a significant place in the !angladesh economy, accounting for as high as a(ove C; percent or more of =DP in )>;$. At the margin, most of the essential food items 8for e,ample, sugar, rice, +heat, onion and edi(le oil9 and, more generally, machineries, intermediate goods and ra+ materials used in production are imported. 1ost of imports can, therefore, (e e,pected to have a su(stantial influence on domestic inflation 8during C;;#6 C;;$9 directly 8through final goods9 or indirectly 8through intermediate goods9. Unfair cartel among the suppliers might seriously hamper the course of the economy (y engendering inflation via the creation of a false supply shortage even during a period of ro(ust gro+th in production. Such an undesira(le event allegedly occurred in )>;$ +hen the food inflation remained high 8@.@$ percent9 in the same fiscal year despite the gro+th in food production 8&.&? percentK vis6N6vis C.C# percent in )>;I9. Monopolistic control of several food items such as sugar, onion, pulses and edi(le oil (y market syndication seems to have led this situation. A(viously such manipulation is a type of supply side distur(ance. *nflation has emerged as a glo(al phenomenon in recent months largely reflecting the impact of higher food 82he *M) food price inde, +as &&.& percent at Lune C;;K9 and fuel prices and strong demand conditions especially in the emerging economies. *n line +ith glo(al trends, !angladesh also e,perienced rising inflation +ith the #C6month average 1P* inflation touching ?.?& percent in Lune C;;K. *n the fiscal year C;;?, glo(al oil price has shifted up+ard dramatically so fast. So that the price of fuel / po+er has driven very sharp impact on our economy (y increasing the price of *ndustrial product and reduces the output of industry. 2hough our government has taken needed initiatives to minimi0e the inflation rate (ut they have failed up to the e,pectation. *n the fiscal year C;#;, glo(al food price has shifted up+ard dramatically so fast. So that the price of food has driven very sharp impact on our economy. 2hough the inflation has decreased to a reasona(le rate 8I.& percent9, the price of food is (eyond to the normal people.

 !ecause of the insufficiency of credit to productive sectors it is una(le to invest money in productive sectors +hereas the money are using in less productive sectors +hich causes a high rate of inflation.

Recent trends of inflation in Bangladesh

*nflation in !angladesh has (een steadily rising in )>#;. 2he easing of inflationary pressures (ottomed out in Acto(er C;;? +hich started softening from previous year. 2he declining trend in average inflation +hich started from Acto(er C;;K ended in Acto(er C;;? and then (egan to rise in Novem(er C;;?. 2his rising trend in inflation +as largely (ecause of food prices hike in the domestic markets, incessant rise in international commodity prices including food, fuel and fertilisers due to gro+ing demand caused (y glo(al economic recovery, e,cess li3uidity in the internal (anking system and higher6than6 targeted money supply gro+th. 2he t+elve month point to point 1P* inflation rose significantly to K.@ percent in )>#; from C.' percent in )>;?. 2he point to point inflation started to decrease in Acto(er C;;K and reached the lo+est level in Lune C;;? and then (egan to rise in Luly C;;?, reached in peak in )e(ruary C;#;. 2he annual average inflation follo+ed up+ard trend +hereas point to point inflation sho+ed slightly mi,ed trend in )>#;. *nflation in !angladesh is largely driven (y food prices. 2he annual average and point to point food inflation depicted mainly up+ard trends in )>#;. 2he annual average food inflation surged to K.I percent in Lune C;#; +hich +as I.# percent in Acto(er C;;? against @.C percent in )>;?. 2he point to point food inflation increased significantly to #;.? percent in )>#; compared to only ;.' percent in )>;?. 2he average non6food inflation follo+ed mi,ed trend during )>#; +hich +as I.I percent in Lune C;#; from I.? percent in Lune C;;?. An the other hand, the point to point non6food inflation also e,perienced mi,ed trend +hich +as I.C percent in Lune C;#; against I.? percent in Lune C;;?. Monthly percentage change in general inflation sho+ed mainly do+n+ard trends till Novem(er C;;? and then started to rise. Monthly change in general 1P* recorded positive figures e,cept negative magnitude in Novem(er and April in )>#;. Monthly 1P* increased (y C.? percent in Luly C;;? +hich +as

the highest in )>#;. Monthly food and non6food *nflation depicted mi,ed trends. 2he food prices +ere relatively higher in domestic and international markets in )>#;. Prices in the international markets have (een soaring mainly (ecause of a crop failure in Australia follo+ing an invasion of locusts and a +et summer in 1anada. Hheat price already reached a t+o year high as concerned a(out a (an on grain e,ports due to drought in %ussia and rotting stock of grain in *ndia. Moreover, there +as strong evidence that speculation and +ild rumor have distorted prices on the commodity markets +hich has driven up prices. %ice 8coarse9 price in the domestic markets stood at 2aka 'K.$ per kg. or #I.C percent higher in Lune C;#; from 2aka ''.I per kg. in Lune C;;? 8!angladesh !ureau of Statistics9. 2he =overnment and !angladesh !ank adopted some measures to supply timely and ade3uately agricultural inputs like fertilisers, seeds, pesticides and fuel. 2he authority planned to provide electricity to rural areas for ! oro production in the last season (y saving electricity from load6shedding in the ur(an areas (ut overall supply +as not ade3uate to fulfill high demand for irrigation. 2he =overnment imposed a (an on rice e,port in early Decem(er C;;?. Moreover, the =overnment provided 'Krishi Card' to #K.C million farmers for supply inputs like fertilisers, agricultural loans and su(sidies on diesel. Ather steps included open market sales of rice in Dhaka city and neigh(ouring districts for fe+ months in early C;#; and introduced 'Fair Price Cards' for C.I million ultrapoor families. 2hough petroleum price in the glo(al market has moved over USD K; a (arrel recently, it kept transport cost unaffected in the domestic market due to administered price, resulted in lo+er non6food inflation. !angladesh !ank raised the rates on 1ash %eserve %atio and Statutory .i3uidity %atio from I.; percent to I.I percent to enchain inflationary pressure and also raised interest rates on =overnment securities, particularly (onds and started auction of ';6Day !angladesh !ank !ills as a measure to mop up e,cess li3uidity. Moreover, !angladesh !ank advised all the commercial (anks to cap interest rates at #C.; percent on import items like edi(le oil, lentils,

pulses, onions, spices and sugar etc. to ensure ade3uate supply in comparatively lo+er prices and to keep prices under control. %ural 1P* carries higher +eight 8@;.K? percent9 in general 1P* compared to ur(an 1P* 8C?.## percent9. Annual average 1P* inflation in the rural areas surged to @.C percent in )>#; from $.K percent in )>;?. 2he component of food prices increased to K.; percent in )>#; from @.# percent in )>;?, +hile the non6food component decreased slightly to I.$ percent in )>#; from $.' percent in )>;?. Annual average 1P* inflation in the ur(an areas rose to @.@ percent in )>#; from $.C percent in )>;?. 2he food component of ur(an 1P* gradually increased to ?.? percent in )>#; from @.& percent in )>;?. 2he non6food component also increased to I.; percent in )>#; from &.K percent in )>;?. Ur(an consumers e,perienced a higher rate of ?.? percent food inflation in )>#;, +hereas the rate +as K.; percent for the consumers in rural areas. Recent Inflation Rate on 'raph

Inflation Average

1imitations of Economic system 2he 3uarterly data on (udget deficit and government e,penditures are not availa(le, +hich hinders the analysis on the supply side determinants of inflation. 2he +age rate is not considered here (ecause of the developing country nature, .a(or is assumed to (e a(undant. 2he key findings" *nflation in !angladesh can (e e,plained (y money supply gro+th as money supply has statistically significant po+er of forecasting the movement in 1P*. *t might (e channeled through either the effects of money supply on =DP or the effects of money supply on e,change rates. 2he deposit rate of interest is a relatively +eak determinant of fluctuations in inflation in !angladesh, +hereas deposit rate of interest is a moderately strong determinant of nominal e,change rate, (ut only in the short run. Money supply is a moderate determinant of fluctuation in real output, at the same time7 money supply is a moderately strong determinant of fluctuation in nominal e,change rate in !angladesh during the period )>;?6)>#;.

How to control inflation in Bangladesh

2he inflation of our country is not uncontrolla(le at all. *t may (e controlled (y the follo+ing policy" #. Offering highly interest "onds% =overnment can offer high interest (onds to have the money of general people into development +ork. People also invest money to have some additional interest. 2hus money +ill shift from the peoples to the government. As a result inflation +ill (e stagnated.

C. #eclared high interest rate% *f !anks offer high interest of the deposited money. People +ill deposit more money into the (anks to have more interest. 2hus flo+ of money can (e controlled. As a result inflation +ill (e ill. '. Issuing profita"le I)O in the share mar0et% *f some profita(le *PA 8*nitial Pu(lic Afferings9 (e there in the share market, then people +ill invest money in case of consuming. 2hus money flo+ of the economy can (e controlled as +ell as inflation also (e controlled. &. Inspiring investment% =overnment can inspire the investor (y providing various facilities. *nvestment +ill use money in productive sector thus production increase as result inflation +ill (e slo+ed do+n. I. Improving 1a . Order situation% .a+ and order situation has a direct impact in production. *n a secure environment production +ill (e increase up. Hith the increasing production inflation +ill (e decreased.

Needed steps
2hese results have important policy implications for (oth domestic policy makers and the development partners. 7irst8 taking into consideration that the inflation rate is not inde,ed in the +ages and salaries, inflation +ill lead to a decrease in the purchasing po+er and an increase in the cost of living. Second8 given that the country fre3uently has to (alance the credit re3uirements (y the private and pu(lic sector against (oth inflationary and (alance of payments pressures, it is not al+ays possi(le for the monetary authority to increase 8or ad-ust9 the nominal interest rate a(ove the e,pected 8or actual9 inflation rate through contractionary monetary policy ##. *n this regard, the monetary authority can think of an alternative +ay (y +orking on the e,pectations channel to reduce inflation. 2his re3uires credi(ility of the monetary authority in follo+ing through its monetary program as communicated in advance to the stakeholders. Bi"liography Boo0s% #. Samuelson, Nordhaus7 EEconomics 7 Bighteenth Bdition. 8Mc=ra+ Dill !ook 1ompany9. C. %udiger Dorn(usch, Stanley )ischer / %ichard Start07 E 9acroeconomics 7 ?th Bdition. 8Mc=ra+ Dill !ook 1ompany, C;##6C;#C9. /e" Sites% *+ + "angladesh$"an0+org -+ +""s+gov+"d :+ +en+ i0ipedia+org ;+ +inflationdata+com