Dhaka: Bangladesh's central bank pledged to further restrain credit growth as it tries to slow an inflation rate exceeding 10 per cent and steady a weakening currency.

Bangladesh Bank will "pursue a restrained monetary growth path in order to curb inflationary and external sector pressures," it said in a statement giving the policy stance for the six months through June. The target for credit expansion among companies and individuals is 16 per cent, it said, compared with 18 per cent earlier.

Bangladesh raised interest rates for the second time in four months on January 5, contrasting with moves to ease monetary policy in nations from India to Thailand as Europe's debt crisis hurts global expansion. The taka's 16 per cent slide against the dollar in the past year is Asia's second-worst, spurred by concern growth may slow and as political risks cloud the outlook.

"The economy is going through a difficult time," Ahsan H. Mansour, executive director of the Dhaka-based Policy Research Institute, said before the release. "For now, it is not possible to bring inflation to single digits."

Consumer prices, stoked by costlier food, rose 10.63 per cent in December from a year earlier, eroding purchasing power in a country where the Asian Development Bank estimates about half the population lives on less than $1.25 a day.

"The fact that non-food inflation is still steadily increasing — partly due to energy and petroleum price adjustments — suggests that the focus on curbing inflation to single digit levels needs to continue," the central bank said.

The government has forecast 7.5 per cent average inflation for the current fiscal year.

A climb in electricity prices threatens to fan price pressures. Tariffs are due to be increased 7.1 per cent from February 1 following a 13.2 per cent rise last month.

The taka was little changed at 84.425 per dollar as of 12:03pm local time yesterday. The Dhaka Stock Exchange's benchmark General index, which is down 38 per cent in the past year, was down 1.7 per cent.

Bangladesh Bank raised the repurchase rate to 7.75 per cent from 7.25 per cent and the reverse repurchase rate by a half a per cent age point to 5.75 per cent earlier this month. September's inflation reading of 11.97 per cent was the highest since December 1998, according to data compiled by Bloomberg.

Expansion

The $106 billion economy may expand 6.5 per cent to 7 per cent in the fiscal year ending June, the central bank said. Gross domestic product rose 6.7 per cent in 2010-2011.

The forecast takes into account risks to export and remittance growth, as well as moderating aid inflows and credit expansion, Bangladesh Bank said, adding it will seek to ensure "adequate private sector credit to stimulate inclusive growth."

The trade deficit is set to widen to $9.03 billion in the year through June, from $7.3 billion in 2010-2011, according to the central bank. Foreign-exchange reserves fell to $9.2 billion from $10.1 billion in the 12 months to mid-January, it said.