Bangladesh Bank keeps policy rate unchanged over inflation concerns

Bangladesh Bank has announced a quarterly monetary policy for the first time in history, in line with International Monetary Fund (IMF) conditions. In this monetary policy announced for the first quarter of October (October-December), the policy rate has been kept unchanged. The central bank has described it as a 'contractionary' monetary policy. This cautious stance has been taken to address the inflation risk created by the recent increase in fuel oil prices and the start of implementation of the new pay scale. However, at the same time, the institution said special emphasis will be given to implementing the announced Tk 60,000 crore incentive package to stimulate business and trade.

Deputy Governor Dr Habibur Rahman formally unveiled the new monetary policy at the Bangladesh Bank conference room on Wednesday, September 30. Deputy Governors Sarwar Hossain and Anisur Rahman, along with senior officials of the central bank, were present at the event. However, although the norm is for the Governor to be present to announce the monetary policy, Governor Mostakur Rahman was not present this time.

At the press conference, Deputy Governor Dr Habibur Rahman said, "Overall inflation has come down to 8.26 percent in August from 9.16 percent in June. This is the lowest in the last 10 months. This mainly reflects food inflation, which has fallen to 7.02 percent. However, non-food inflation is still at a high level of 9.32 percent. Inflation may gradually decline in the current 2026-27 fiscal year. But the pace of this decline is quite uncertain. The main risks in this regard are the prolonged conflict in the Middle East and disruption in the Strait of Hormuz, high prices of fuel and fertiliser in the world market, tight global monetary policy including in the United States, domestic fuel and infrastructure limitations, pressure on the revenue sector, implementation of the national pay structure and weaknesses in the banking sector. Loosening monetary policy before the appropriate time could increase inflation expectations. That is why the policy rate has been kept unchanged."

In response to journalists' questions on why the policy rate has not been raised in Bangladesh when countries around the world, including the United States, have raised rates amid the global context, Dr Habibur Rahman said, "Bangladesh's interest rate is already much higher compared to other countries. Earlier, when other countries reduced rates, ours remained unchanged. That is why no change is being made for now."

Earlier, in July last year, the central bank cut the main policy rate, the repo, by 50 basis points to 9 percent. Before that, the repo rate had remained unchanged at 10 percent since October 2024. Additionally, the maximum limit for interbank borrowing, the Standing Lending Facility (SLF) rate, was cut by 50 basis points to 11 percent, while the minimum limit, the Standing Deposit Facility (SDF), was kept unchanged at 7 percent. Related sources said this status quo in the policy rate has been maintained mainly because inflation risks persist.

Speaking on economic growth, the Deputy Governor said, "Bangladesh Bank believes the economy will recover slowly rather than rapidly. The World Bank has forecast 4.6 percent growth in the 2026-27 fiscal year, and the IMF has revised its earlier forecast of 4.3 percent down to 3.5 percent."

Noting that the country's economic growth is currently under pressure, he further said, "Due to various reasons, slow economic activity was observed in the last 2025-26 fiscal year. However, some recovery was seen in the first quarter of the 2026-27 fiscal year. High financing costs, energy shortages, infrastructure bottlenecks and uncertainty surrounding domestic and external demand could disrupt the pace of growth."

However, recalling positive news in the external sector and the government's special initiatives amid economic pressure, Habibur Rahman said, "The reassuring thing is that the exchange rate of foreign currency is currently stable as remittance flow increased by 18.90 percent. And Bangladesh Bank has announced a special incentive package of Tk 60,000 crore, including Tk 20,000 crore to restart closed factories and another Tk 40 crore for agriculture, CMSME and export diversification. Announcing this package does not mean all loans will be disbursed tomorrow. A realistic detailed programme will be given soon to disburse these loans properly."

Clarifying the way forward, the Deputy Governor said, "Supporting economic activity without disrupting the process of lowering inflation is the main challenge for Bangladesh Bank. Therefore, Bangladesh Bank will keep a close watch on global and domestic conditions. A data-driven strategy will be followed. In this regard, emphasis will be placed on targeted credit support, structural reforms, strengthening the financial sector and maintaining orderly exchange rate flexibility. Bangladesh Bank's overall goal is to support sustainable economic recovery while maintaining price stability, external sector balance and financial system resilience."