Bangladesh Bank (BB) aims to maintain contractionary or tight monetary policy to control inflation until inflation comes below 7%.
In its new Monetary Policy Statement (MPS) for the first half (July-December) of FY26, they kept the policy rate unchanged at 10% while further reducing the credit growth target to 7.2%.
On October 27 last year, the repo rate was fixed at 10%.
In the last monetary policy declaration in February, private sector credit growth was set at 9.8%.
Public sector credit growth, on the other hand, has jumped from 17.50% in the last declaration to 20.40% in the new one.
However, the new monetary policy has kept the Standing Lending Facility (SLF) at 11.50% and the Standing Deposit Facility (SDF) at 8%.
BB Governor Ahsan H Mansur unveiled the second monetary policy of his tenure at a press conference at the central bank's headquarters in Dhaka on Thursday.
He said: “Inflation has been easing since January. We want it to come down further. But it has not reached the level we want. Until the inflation rate permanently falls below 7%, the policy repo rate will remain fixed at 10%.”
He also mentioned how the June inflation rate eased to 8.48%, down from 9.05% in May, falling below the 9% mark after 27 months, or more than two years.
The governor also said they aimed to bring down inflation to between 3% and 5%, but it would take time.
“That's why we are continuing our contractionary stance.”
Regarding the interest rate cut, the governor said: “When inflation falls below 3% of the policy rate, we will be able to reduce the interest rate. Currently, the repo rate is 10%, but there will be an opportunity to reconsider it if inflation falls to 7%.”
He also added that a slight downward trend in interest rates has already been observed. The interest rate on treasury bills and bonds has come down from 12% to 10%. In addition, the overnight rate has also been reduced from 8.5% to 8% so that banks cannot easily make a profit by keeping money in Bangladesh Bank.
“To make a profit, you have to invest.”
Depositors needn’t panic
To address the depositor concerns, the governor said: “There is nothing to panic about; their savings are safe.”
Referring to the government's plan to restore order in the banking sector, he stated: “To restore order in the banking sector, the government will invest a large amount along with mergers. Along with this, there will be structural changes in the management of banks.”
“Even those banks that have not been able to improve their situation despite repeated opportunities from the central bank to print money, strict action will be taken this time,” he also said.
Explaining the context of monetary policy, the governor said that currently the country has a growth rate of 4%, which is positive in the context of Bangladesh. He hopes that it will reach 5% to 6% in the next fiscal year.
Stating that the banking sector will be kept under constant surveillance, he said that the Bank Company Act will be amended, for which the central bank will make a proposal next month.
Regarding the dollar, the governor said that there is no shortage of dollars in the country.
“The government has the capacity to import various products, including rice, as needed at any time.”
The MPS further stated that the economy was confronted with significant macroeconomic challenges when the current interim government assumed office in August 2024.
The major challenges included persistently high inflation, a depreciating exchange rate, depleting foreign exchange reserves, a buildup of external payment arrears, tight liquidity conditions, a lack of good governance, and elevated non-performing loans (NPLs).
In response, Bangladesh Bank has outlined clear and forward-looking strategies emphasizing its strong commitment to containing inflation, stabilizing the exchange rate, rebuilding foreign exchange reserves, and restoring confidence in the banking sector through improved governance.
To fulfill its commitment, the central bank has maintained a tight monetary policy stance and adopted a fully flexible market-based exchange rate regime.
It also initiated a wide range of reform programs targeting the banking sector.
Global economic growth is expected to weaken due to increased trade tensions and heightened policy uncertainty.
The recent rise in tariffs by the US administration and the associated uncertainties pose risks to exports and disruptions to global supply chains and intensify financial market turbulence.
Moreover, global inflation is expected to ease due to weakening demand, currency volatility, and declining hydrocarbon prices.
Therefore, central banks around the world may be more inclined to reduce interest rates or keep them steady at current low levels, given the dual context of weaker growth and lower inflation.
Meanwhile, world commodity prices are expected to decline in 2025 and 2026.
The MPS also stated that if exports weaken due to tariff shocks and the weaker global growth outlook, accompanied by depreciation pressures, the Bangladesh Bank will adjust the policy rate as needed to cushion the short-term impact while safely guiding its inflation objectives.
