DHAKA, May 16 (Xinhua) -- The Asian Development Bank (ADB) has advised Bangladeshi central bank to adopt a cautious monetary policy and control budgetary borrowing with a more flexible exchange rates management to mitigate inflationary pressures, The Daily Star reported Wednesday.

    The ADB in its Quarterly Economic Update, released Tuesday, said point-to-point inflation rose by 6 percentage points between July 2006 and March 2007. The rise was due to growing food and non-food inflation, high monetary and private sector credit growth, government efforts to stem rising price of essentials, high fuel prices, and considerable increase in exports and remittances.

    "Sound macro-economic management, combining a cautious monetary policy stance by Bangladesh Bank (the central bank) and controlled budgetary borrowing, will be essential with more flexible exchange rate management to reduce inflation to more acceptable levels," the report said.

    Monetary policy also needs to counter inflationary trends generated by large foreign inflows through exports and remittances, according to the report.

    The report attributed rising food inflation to higher food-grain prices in domestic and international markets, reduced imports and lower domestic food production.

    The ADB said the drive against hoarding and administrative efforts to control prices of essentials might have added to inflation by disrupting import and supply.

    Besides, the recent increase in fuel prices could cause temporary inflationary pressures due to the rise in transport costs, the report said.

    The bank forecast a GDP growth of 6.5 percent in the fiscal year 2007 (July 2006-June 2007) in Bangladesh. However, it said Bangladesh has the potential of attaining more than 8 percent economic growth if the country can tap the opportunities in different sectors properly and develop infrastructure as per need.

    "The country is doing well but it is still below its potential. If the country could maintain an 8 percent GDP growth, it would be a mid-income country by 2015," said ADB Country Director in Bangladesh Hua Du at the launching ceremony of the economic update in Dhaka.