Bangladesh will benefit from the power struggle between China and India for dominance of South Asia and the Indian Ocean, as the two giants will want to strengthen their political, economic and defence cooperation with Dhaka. This bodes well for Bangladesh’s long term economic growth, which we are forecasting to come in at an annual average rate of 6.3% over the next 10 years.
With the return of political normalcy, we are optimistic that investment and export sector growth will start to pick up over the coming quarters, and are forecasting real GDP growth of 6.3% in FY2014/15.
Bangladesh Bank is expected to keep its REPO rate unchanged at 7.25% in H1FY15 (July-December), as inflation will likely remain relatively benign, while the economy should recover from the recent political turmoil.
The recent increase in electricity prices will enable the government to reduce energy subsidies and narrow the fiscal deficits. With this positive development, we are forecasting the budget deficit to come in at 3.1% of GDP in FY2013/14, before falling marginally to 3.0% of GDP in FY2014/15.
Bangladeshi taka is expected to remain fairly stable near its current level of BDT77.65/USD over the coming months, as the Bangladesh Bank (BB) will likely continue to anchor the currency while it bolsters its foreign reserves. However, we see scope for mild appreciation over the course of the year as the garment export sector recovers amid renewed political stability.
Major Forecast Changes
While experts initially forecasted a 50 basis points cut in interest rates to support growth, rising inflationary pressures will likely hold back such a move. As such, we forecast the central bank to maintain a neutral monetary policy stance for the remaining months of FY2013/14, and will keep its benchmark REPO rate unchanged at 7.25%.
-Fast Market Research