The Bangladesh Bank Governor Ahsan H Mansur believes that he can reduce inflation even if the price level cannot be lowered.
While unveiling the monetary policy for the second half of the 2024-25 fiscal year at the central bank on Monday, he expressed hope that inflation will come down to 7-8% by June and that the policy rate will be reduced afterwards.
He also said some money exchanges are trying to manipulate the exchange rate. “But these aggregators will not determine the rate; whatever we [Bangladesh Bank] say will be the market price.”
The governor also said that he does not see any investment growth possibility in FY25.
“Given the global and domestic realities, Bangladesh Bank remains committed to a tight monetary policy stance for the second half of FY25,” he added.
On Monday, Bangladesh Bank announced that the policy rate, also known as the repo rate, has been kept unchanged at 10%, indicating no intention to make money costlier further as inflation has started to come down for the last two months — December and January.
On the other hand, the Standing Lending Facility (SLF) rate will remain at 11.5%, while the Standing Deposit Facility (SDF) rate will stay at 8.5%.
Ahsan H Mansur said: “The policy rate was raised to 10% in November. But considering the current situation, it has been decided to keep it at the same level. I hope inflation will decrease to 7%-8% by the end of June. Policy rate will be reduced if inflation falls below 7%.”
Meanwhile, Bangladesh Bank Deputy Governor Habibur Rahman said inflation will come down to 5% by next year.
He also said the central bank hoped to reduce the policy rate by the second half of the current year.
According to the Monetary Policy Statement (MPS), the main goals are to contain inflation and stabilize the forex market while building forex reserves and addressing the rapidly rising non-performing loans in banks and financial institutions.
The banking watchdog noted that although Bangladesh's exports and remittances might recover due to the expansion of the global economy, several downside risks persist.
These include potential escalations in various regional conflicts, a resurgence in financial market volatility that could adversely affect sovereign debt markets, and increased protectionist trade measures.
The country’s inflation remained persistently high, staying above 10% for an extended period, despite various monetary and fiscal tightening measures.
However, the impact of these policies is beginning to show, as the point-to-point inflation rate eased in December 2024 and again in January 2025, dropping to 9.94% in January from 11.38% in November, mainly due to a decline in food inflation.
This outlook is supported by actions already taken by the monetary and fiscal authorities, continued stability in the exchange rate, ongoing global commodity price moderation, and anticipated output expansion in agricultural products like boro rice and other agricultural commodities.
“Bangladesh Bank will continuously monitor inflation trends and adjust interest rates and liquidity measures as necessary,” read the MPS.
“However, a decline in global prices, a moderation of geopolitical tensions, stability in the exchange rate, and recent significant increases in policy rates should help alleviate domestic inflationary pressures in the coming months,” it added.
NPL to exceed
According to the Monetary Policy Statement, non-performing loans (NPLs) in Bangladesh's banking sector are expected to exceed 30% of the total outstanding loans by June this year.
As per the latest available Bangladesh Bank data, NPLs stood at Tk2.84 lakh crore in September 2024, accounting for nearly 17% of the country's outstanding loans of nearly Tk16.83 lakh crore.
The central bank is using internationally recognised methods to control NPLs. It also plans to incorporate the Expected Credit Loss (ECL) methodology in 2027.
Stressed banks
The banking sector continues to face numerous challenges, including rising NPLs, tighter liquidity conditions, and slowing deposit and credit growth, Bangladesh Bank said in the MPS.
"The stressed banks are under close surveillance, and future actions will be determined based on the outcomes and consistent with the forthcoming Bank Resolution Act," it added.
The statement also said the central bank has set up task forces dedicated to managing and implementing banking sector reforms.
GDP decelerate
Bangladesh's economy may grow at a rate of around 4% to 5% FY25, but it is expected to bounce back to 6% or above the following year, largely due to a combination of natural and industrial disruptions.
According to the MPS, the country’s growth outlook for the second half of FY25 does not appear optimistic due to the existing challenges.
Bangladesh Bank shared its projection on the country's GDP growth at a time when the government is considering revising its target to 5.25% for the current fiscal year due to the damage caused by multiple floods and the interim government's contractionary monetary policy aimed at containing high inflation.
The World Bank forecasted 4.1% growth in FY25, and the International Monetary Fund (IMF) predicted a 3.8% economic growth for the ongoing fiscal year.
Meanwhile, in its MPS, the central bank stated that economic growth should bounce back in FY26, beginning in July.
