Policy rate remains unchanged; economic growth target set to 5.25%

The Bangladesh Bank on Monday has kept the policy rate (repo rate) unchanged at 10 percent in its monetary policy stance for the second half (January to June) of the current fiscal year as inflation eased slightly in December. It is also learnt that Bangladesh Bank has set a target of 5.25% economic growth outlook in monetary policy and inflation will decrease and policy interest rate and private credit growth rate to remain unchanged.

Moreover the private sector growth rate to remain unchanged and the inflation is set to decline further in the near future making the target range of 7-8% achievable and the target of growth outlook of Bangladesh Bank for the current year is 5.25%.

Bangladesh Bank (BB) Governor Dr Ahsan H Mansur said the policy rate may be cut in the second half of this year if inflation comes down.

He added that the balance of payments is now in surplus, and the financial account is satisfactory. Last year, it was negative. "It is important for us to keep the exchange rate stable. If it is not, inflation will hit. Therefore, it will be monitored.

The Governor further stated that "Seasonal demand will decrease in February, and electricity costs will rise. Due to the area of settlement, inflation will decrease further. There has been an expenditure of about 600 million due to food imports, but more can be given. Remittances will increase during Ramadan in March. Due to inflation, we will not be able to reduce prices, but we can reduce inflation."

"Liquidity support has been provided to the banks, and more assistance will be given. Bangladesh Bank will ensure that depositors do not leave empty-handed. Islamic banks have somewhat stabilized now, with positive deposit rates. However, there are some non-performing loans, which will gradually decrease. New loans that go into NPL (Non-Performing Loans) will be monitored. It will take about one and a half to two years," he added.

In December 2024, inflation declined marginally to 10.89 percent from 11.38 percent in the previous month but remained above the 10 percent threshold for the second consecutive month, according to the Bangladesh Bureau of Statistics. This left the annual average inflation rate for 2024 at 10.32 percent.

Inflation in Bangladesh has remained above 9 percent since March 2023, with the central bank's existing contractionary monetary policy yet to significantly reduce consumer prices. Bangladesh Bank has hiked the policy rate several times, bringing it to 10 percent.

It is worth noting that on February 6 a report titled 'Monetary Policy: No increase in policy interest rate' was published at Views Bangladesh where details about the issue has been discussed.