Country Report Bangladesh July 2000 Updater

Economic forecast: Inflation

Two successive bumper harvests and inflows of food aid lowered the inflation rate to just under 2.5% year on year in February 2000. This trend is likely to continue as food prices will remain weak -- food expenditure constitutes over 60% of the consumption basket. Weak capital markets and weak private-sector credit demand, owing to poor investor confidence caused by political volatility, will further ease pressure on prices. These factors, together with lacklustre GDP growth, will prevent inflation from rising to historical levels during the forecast period. However, increased government borrowing from the domestic market and a continued recovery in non-oil and oil commodity prices may ignite import- and demand-induced inflationary pressures later in the forecast period. Nevertheless, the recent strength in domestic food output will result in the annual average inflation rate falling to 5.8% in 2000, before increasing to 6.2% in 2001 as industrial demand increases and high commodity prices filter into the index.

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