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Consequences and causes of inflation: A study in the ... - Wbiaus.org

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5. F<strong>in</strong>d<strong>in</strong>gs <strong>of</strong> Objective 4Abdullah, Shamsher & ChowdhuryApplicable strategies to cope with InflationThe empirical results obta<strong>in</strong>ed <strong>in</strong> this paper provide important policy implications forBangladesh. Given <strong>the</strong> <strong>in</strong>stitutional arrangement, it appears that <strong>the</strong> monetary authority<strong>in</strong> Bangladesh is not <strong>in</strong>dependent <strong>of</strong> <strong>the</strong> fiscal authority <strong>and</strong> that it merely implements<strong>the</strong> decisions regard<strong>in</strong>g credit expansion <strong>and</strong> monetization <strong>of</strong> budget deficit taken by <strong>the</strong>executive branch <strong>of</strong> <strong>the</strong> government. An implication <strong>of</strong> this is that <strong>the</strong> ultimateresponsibility for <strong>the</strong> expansionary monetary policy <strong>in</strong> Bangladesh lies with <strong>the</strong>Government (Bangladesh Economic Update, 2011).It appears that <strong>the</strong> monetary system <strong>in</strong> Bangladesh has a built <strong>in</strong> bias towardsexpansion <strong>of</strong> money supply. It is commonly acknowledged that <strong><strong>in</strong>flation</strong> is hard toprevent <strong>in</strong> a country <strong>in</strong> which <strong>the</strong> government has direct <strong>and</strong> <strong>in</strong>direct authority to pr<strong>in</strong>tmoney to f<strong>in</strong>ance a fiscal deficit. Inflation is harder to prevent if <strong>the</strong> government createsmoney not only to f<strong>in</strong>ance fiscal deficit but also to provide subsidized credit to both <strong>the</strong>private <strong>and</strong> public sectors. Here we expla<strong>in</strong> some strategic po<strong>in</strong>t that might be useful toreduce <strong><strong>in</strong>flation</strong>.1. The policy makers have to keep a sharp eye on cost behavior <strong>in</strong> <strong>the</strong> relevantperiods.2. Cutt<strong>in</strong>g down <strong>in</strong>direct tax on commodities may help to reduce <strong><strong>in</strong>flation</strong> pressurestemporarily.3. Bangladesh Bank can take over some responsibilities such as monitor<strong>in</strong>gmodalities <strong>of</strong> L/C (Letter <strong>of</strong> Credit) operation so that market forces determ<strong>in</strong>e <strong>the</strong>exchange rate <strong>in</strong> a process that rema<strong>in</strong>s free from speculative transactions.4. Government can effectively use its legal power to break up <strong>the</strong> marketsyndication <strong>and</strong> thus improve competitiveness <strong>of</strong> <strong>the</strong> distribution network.5. Bangladesh Bank can reduce <strong>the</strong> duration <strong>of</strong> loan given aga<strong>in</strong>st L/C opened forimport<strong>in</strong>g essential consumer gods.6. Government should pass “Consumer Rights Protection” than consumers will beable to seek legal protection aga<strong>in</strong>st charg<strong>in</strong>g <strong>of</strong> irrational price <strong>of</strong> essentials by<strong>the</strong> sellers.7. Commodity price also rice by Creat<strong>in</strong>g Artificial crisis, hoard<strong>in</strong>g, obstruct<strong>in</strong>ggoods transportation, tak<strong>in</strong>g money by cheat<strong>in</strong>g <strong>in</strong> <strong>the</strong> name <strong>of</strong> provid<strong>in</strong>gservices. These illegal activities should be stopped as early as possible.Government should <strong>in</strong>troduce commodity exchange market that can forecastfuture dem<strong>and</strong>.8. Increases supply <strong>of</strong> essential commodities (rice, wheat, <strong>and</strong> lentil) with no orleast tariff <strong>and</strong> efficient <strong>in</strong>termediation.9. Political parties should come out <strong>of</strong> <strong>the</strong> practice <strong>of</strong> mudsl<strong>in</strong>g<strong>in</strong>g <strong>and</strong> blameshift<strong>in</strong>g.10. Information system should be improved <strong>in</strong> a way that reduced <strong>the</strong> <strong>in</strong>formationgap among different stakeholders <strong>of</strong> <strong>the</strong> country.11. To streng<strong>the</strong>n local currency Government has to <strong>in</strong>crease Remittance Inflow,Export & Production.12. To streng<strong>the</strong>n <strong>the</strong> Trad<strong>in</strong>g Corporation <strong>of</strong> Bangladesh to control import prices <strong>of</strong>essential commodities.98

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