Dangerous trends in the economy

10 January 2012, 18:00 PM

Mohammad Anisuzzaman Sarker, Management Trainee Officer, Mutual Trust Bank Limited

Photo: STAR

Inflation rate in Bangladesh is now prevailing at a double digit figure, approximately twelve percent. Inflation rate is considered one of the most important macro-economic indicators. Bangladesh's economy is at its worse at this moment. There are scores of reasons for rising inflation such as, demand-supply gap, poor monetary policy, lack of proper government regulations and policy decisions, excessive expenditures on non-productive sectors, import-export imbalances, etc. Inflation contributes to the loss of purchasing power, decrease in real income and a prolonged negative impact on investment. Given that we have twelve percent inflation rate till date, our savings rate remains somewhere around twelve percent or below. Now consider its consequences. We invest in different savings instruments with the sole objective of a good return whereas we end up with fewer amounts compared to what we had before in real terms! This is a nightmarish situation for any economy that exhibits a very dangerous trait if we consider the market dynamics such as multiplier effect, people's expectations, and demand-supply equilibrium. It is hard to survive in such a situation where people are struggling to obtain their basic needs. Hence, it demands drastic measures on the part of the policy makers.