Staff Reporter :
The Bangladesh Bank (BB) has increased its policy rate by 50 basis points, bringing it to 9 percent, in an effort to curb the nation’s rising inflation.
The decision was made during a meeting of the Monetary Policy Committee, chaired by newly appointed Governor Dr Ahsan H Mansur, at the BB headquarters.
In addition to the policy rate hike, the central bank has also raised the Standing Lending Facility (SLF) rate by 50 basis points to 10.50 percent.
Similarly, the Standing Deposit Facility (SDF) rate has been increased by 50 basis points to 7.50 percent.
This adjustment in interest rates aligns with the governor’s previous statement during an interview with the BBC on 22 August, where he indicated an intention to implement such measures.
“We are committed to taking necessary actions to stabilise the economy, and this includes adjusting interest rates in response to inflationary pressures,” Mansur had said.
The rate hikes come in the wake of escalating political unrest in the country, which has exacerbated the inflation rate, pushing it to a concerning 11.66 percent in July.
The inflation surge is compounded by the challenges of diminishing foreign reserves and a downturn in exports, particularly in the garment sector, which forms the backbone of Bangladesh’s economy.
Governor Mansur, who assumed his role only a week ago, has hinted at further increases in the coming months.
“We may need to raise interest rates to 10 percent or higher to ensure economic stability,” he mentioned, signalling that this might just be the beginning of more stringent monetary measures to come.
Bankers said any commercial bank facing a liquidity crisis will have to pay more interest if they borrow money from the Bangladesh Bank.
At the same time, the interest rate of loans will increase at the customer level. This will mean decreasing consumer spending, which is expected to lower the inflation rate.
Meanwhile, the central bank has raised the policy rate by more than 400 basis points in two years to 8.5 percent, but inflation has shown no signs of cooling.
Annual inflation in Bangladesh rose to 9.73 percent in FY24, the highest since FY12, according to the Bangladesh Bureau of Statistics.
The trend has continued into the ongoing financial year, with it staying above 9.5 percent, hurting the poor and low-income groups by significantly eroding their purchasing power.
The CPI raised 1.94 basis points to 11.66 percent in July compared to the month prior.
Overall inflation hit 11.66 percent in July, the highest at least since 2010-11 fiscal year, reflecting the worsening of the purchasing capacity of people.
On the other hand, the monthly wage growth of the low-income earners in Bangladesh remained well below the overall inflation rate for the last two and half years, suggesting that many people are reducing consumption to cope with the increased financial distress.
The Bangladesh Bureau of Statistics (BBS) data showed the wages started to erode in the subsequent FY2022 and continued up to the first month (July) of the current fiscal year of 2024-25.