The government has kept borrowing from the Bangladesh Bank as commercial banks can’t come up with much-needed funds owing to the liquidity crunch.
But if the government consistently borrows from the central bank, it may fuel inflation, which has remained at an elevated level for the past one year.
Between July 1 and February 9 this fiscal year, the government borrowed Tk 52,129 crore from the central bank, according to BB data. It borrowed Tk 31,403 crore in the entire fiscal year of 2021-22.
“Borrowing from the central bank usually means an injection of new money into the market. This usually put an adverse impact on inflation,” said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office.
In other words, this means, the volume of notes and coins out in circulation is increasing. And such a form of money can multiply by as much as five times as only a fraction of deposits is backed by actual cash and is available for withdrawal.
So, the Tk 52,129 crore borrowed by the government may end up being Tk 260,645 crore eventually.
The extra money in the hands of people means it will create demand for goods, which may push up the price level.
According to data from…
