Despite the three-pronged challenges of high inflation, deep crisis in the banking sector and prolonged instability in the foreign exchange market, Bangladesh Bank treading on the path of a tight monetary policy.
On Monday (November 9), Bangladesh Bank governor Ahsan H Mansur announced a new monetary policy for the second half of FY26.
While announcing the monetary policy, he said that the central bank has decided to keep the policy interest rate unchanged at 10%.
At the same time, while the Standing Lending Facility (SLF) has been maintained at 11.5%, the Standing Deposit Facility (SDF) has been reduced by 50 basis points to 7.5%.
According to Bangladesh Bank, it is risky to reduce the policy interest rate at this time as inflation is still far above the target. However, this strategic decision to reduce the SDF is aimed at ensuring that banks lend to the interbank market and the private sector instead of keeping excess liquidity with the central bank.
Bangladesh Bank's analysis says that the country's inflation is mainly due to supply shortages and structural problems. Despite the exchange rate remaining stable and global commodity prices declining slightly, the 'stickiness' of prices in the domestic market has not subsided. As a result, inflation still remains above the central bank's 7% target.
However, as a result of the continued tight monetary policy, a major achievement is that the real policy rate has moved to a positive position.
The central bank believes that this has increased interest in savings, strengthened deposit growth and restored the credibility of monetary policy.
Due to tight monetary policy, political uncertainty and reluctance to invest, credit flow to the private sector has fallen to its lowest level in many years. At the same time, the government's high level of bank borrowing to meet the budget deficit is creating a 'crowding out effect'. As a result, private entrepreneurs are facing relatively expensive loans.
Bangladesh Bank admitted that the liquidity crisis has eased to some extent, but banks are now more focused on balancing their balance sheets and reducing risks than increasing loans.
The officially recognized non-performing loan ratio in the banking sector has exceeded 36% as of September 2025—the highest in history. However, Bangladesh Bank says that this is not a new increase in defaults; rather, it is the result of strict asset classification and accurate accounting as per international standards.
Before the change of government in 2024, liquidity was under severe pressure due to massive money laundering from the banking sector. However, deposit growth turned around in 2025. While deposit growth was below 7% in August 2024, it increased to about 11% in December 2025.
Although this growth has not been uniform—there is a clear trend of deposits shifting to better banks.
The biggest success of monetary policy has come in the foreign sector. Bangladesh Bank said that after the change of government in August 2024, the first priority was to restore confidence in foreign trade financing. To this end, $3.5 billion in suspended foreign liabilities were paid.
In addition, due to strong remittance inflows, the current account has turned from a large deficit in FY24 to a surplus in FY25. As a result, the taka-dollar rate has remained stable even in a market-based exchange rate regime without any intervention.
While foreign exchange reserves were $25.6 billion in August 2024 (four months of import expenditure), they have increased to $35.2 billion in December 2025—capable of covering more than five months of import expenditure.
Bangladesh Bank said that since August 2024, they have not sold a single dollar from the reserves; rather, they have strengthened the reserves by buying $4.3 billion from the interbank market in FY26.
In addition, with the coming into force of the Bank Resolution Ordinance 2025 and the Deposit Protection Ordinance 2025, the central bank has the legal power to merge weak banks, liquidate them and form bridge banks. With the deposit insurance limit being increased from Tk1 lakh to Tk2 lakh, about 95% of depositors have come under the protection of the bank.
Under this framework, five troubled Islamic banks have been merged to form a consolidated Islamic bank, whose paid-up capital is Tk33,000 crore. At the same time, nine financial institutions (NBFIs) are in the process of liquidation.