Pay hikes for govt employees risk fuelling inflation: BB governor

The interim government’s proposed new pay scale for public servants could intensify inflationary pressures and strain the banking system, Bangladesh Bank (BB) Governor Ahsan H Mansur said today.
 

"The salary hike will require borrowing more from the banking system. Is that going to help reduce inflation? No,” the governor said at an event on the implications of the LDC graduation for the banking system, organ

ised by the International Chamber of Commerce-Bangladesh (ICCB) in Dhaka.

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The government is planning a general salary increase, which will double the wage bill.
 

Speaking about the central bank’s efforts to tame inflation, Mansur said bringing down inflation is achievable, but will take time.
 

Bangladesh, he noted, has already reduced inflation from around 12.5 percent to about 8.3 percent. “Inflation has to come down. We must give it time. We must be patient.”
 

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Can we afford such a steep public-sector pay hike?

However, he cautioned that the real challenge lies in breaking inflation expectations, which have been entrenched for decades.
 

“Historically, Bangladesh has never had low inflation,” he said, noting that inflation has typically hovered around 6 percent to 8 percent. Claims of sustained high growth alongside low inflation, he added, were often more cosmetic than real.