The Bangladesh Bank is expected to keep the policy interest rate (repo) unchanged at 10% in its upcoming monetary policy announcement, signalling a cautious approach as inflationary pressures persist and economic recovery remains fragile.
Despite recent calls for rate adjustments to stimulate growth, policymakers appear inclined to maintain the current rate to balance inflation control with currency stability.
Inflation fell to a 35-month low in June. Meanwhile, private sector credit growth dropped to 6.40%. In this context, business leaders have been urging for a cut in interest rates to boost investment.
Bangladesh Bank Governor Dr Ahsan H Mansur is set to announce the monetary policy for the next six months (July-December) today. Once again, controlling inflation is expected to be given priority over achieving higher economic growth.
In the current fiscal year’s budget, the government has set a target to bring down average inflation to 6.50% by June next year. The economic growth target has been set at 5.50%.
Private sector credit growth is projected at 9% until this December. Although the projected target is higher than the actual achievement, it is lower than last fiscal year’s target. Meanwhile, government credit growth is projected at 20% till December.
The Bangladesh Bank last raised the key policy rate (repo) by 50 basis points to 10% on 22 October last year.
Typically, banks borrow short-term funds from the central bank by pledging government securities through the repo mechanism.
In the new monetary policy, the Standing Lending Facility (SLF) rate—used for interbank borrowing—is expected to remain unchanged at 11.50%.
However, on 15 July, the Standing Deposit Facility (SDF) rate—applicable to banks depositing money with the central bank—was reduced by 50 basis points to 8%. According to Bangladesh Bank data, inflation peaked at 11.38% in November last year. Since then, it has been declining month by month, reaching 8.48% in June.
Experts have attributed this downward trend in inflation to two main factors: the stabilisation of the dollar exchange rate and improved domestic production. Due to strong performance in exports and remittances and access to low-interest foreign loans, the gross foreign exchange reserves rose to US$31.72 billion by the end of June.
Overall, the declining trend in inflation is expected to continue. In the monetary policy announced in January, private sector credit growth was projected at 9.8% by June, but the actual achievement was only 6.40%.
A similar target was set in December last year as well, but actual growth was 7.28%.
This time, government sector credit growth may be projected at 20%. In the last fiscal year, the target was 19.80%, but by June, the actual achievement was 15.25%.
LND/SAE
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