Bangladesh Bank Sticks to Tight Policy

Bangladesh Bank has opted to maintain its tight monetary stance for the second half of the 2026–27 fiscal year, underlining once again that containing inflation remains its overriding priority. In the monetary policy statement covering January to June, the central bank made clear that it is not yet prepared to ease conditions, despite sustained pressure from business groups calling for lower interest rates to stimulate investment and growth. Policymakers argue that any premature relaxation could jeopardise hard-won gains in macroeconomic stability.

Under the announcement, the policy interest rate—commonly known as the repo rate—has been kept unchanged at 10 per cent. Senior officials acknowledge that inflation has moderated in recent months, but stress that it is still well above the desired level. In December, consumer price inflation stood at slightly above 8 per cent, compared with the government’s full-year target of 6.5 per cent. Bangladesh Bank had previously signalled that restrictive policies would remain in place until inflation falls below 7 per cent. As that threshold has not yet been reached, the current stance has been retained.

Credit growth targets also reflect the cautious approach. The ceiling for private-sector credit growth has been left unchanged at 8 per cent, even though actual growth is currently running at around 6.2 per cent. Analysts attribute the shortfall to subdued investment appetite following recent political changes and weaker overall demand in the economy. By contrast, the indicative cap on public-sector credit growth has been raised from 18 per cent to 19 per cent, providing the government with slightly greater fiscal space to finance priority expenditures.

Interest rates across the banking system have trended upwards over the past six months. Average lending rates have risen to close to 12 per cent, while average deposit rates have moved above 6 per cent. This has offered some relief to savers, but it has also increased borrowing costs for small and medium-sized enterprises, adding pressure to their cash flows and expansion plans.

Governor Ahsan H Mansur has publicly stated that he would welcome an opportunity to reduce rates if conditions allow. However, he cautioned that easing too early could undo the progress achieved in curbing inflation. He noted that inflation had previously peaked at around 12.5 per cent and has since fallen to roughly 8.5 per cent—an improvement, but not yet a decisive victory. The central bank’s medium-term objective is to bring inflation down to between 3 and 4 per cent within the next two years.

On the external front, conditions have improved noticeably. Following the adoption of a more flexible exchange-rate regime in May 2025, Bangladesh Bank has halted dollar sales and instead purchased about $3.7 billion since August 2024. As a result, the current account has moved close to balance, the financial account has recorded a surplus, and foreign-exchange reserves have been rising gradually. By late January, gross reserves had exceeded $28 billion, while the taka has remained broadly stable at 122–123 per US dollar for almost a year. The central bank aims to lift reserves to $35–36 billion by June.

Key Monetary and Financial Indicators

Overall, Bangladesh Bank believes that sustaining a tight monetary policy is essential to bringing inflation under control, safeguarding external stability and gradually restoring investor confidence in the economy.