Staff Reporter :
The Bangladesh Bank (BB) has raised the policy rate, a key monetary policy tool, by 50 basis points, bringing it to 10 percent, effective from 27 October, according to a circular issued on Tuesday. This marks the 11th rate hike since May 2022 as part of the central bank’s strategy to tighten monetary conditions, making borrowing more expensive for banks in an effort to curb inflation by reducing demand.
The latest hike comes less than a month after a similar increase on 24 September, when the BB raised the policy rate to 9.5 percent from 9 percent.
In addition to the policy rate adjustment, the Interest Rate Corridor (IRC) has also been altered. The upper ceiling, known as the Standing Liquidity Facility (SLF), was raised to 11.5 percent from the previous 11 percent, while the floor rate, called the Standing Deposit Facility (SDF), was increased to 8.5 percent from 8.0 percent.
The SLF provides overnight credit to eligible banks facing short-term liquidity shortages, while the SDF allows banks to deposit their surplus liquidity with the central bank. With the latest adjustments, commercial banks experiencing liquidity shortfalls will now face higher borrowing costs from the central bank. This is part of BB’s broader contractionary monetary policy aimed at tightening the money supply to address persistently high inflation.
Inflation has been a significant concern for the economy, with people, especially those with limited incomes, suffering from the sharp rise in the cost of living. Inflation reached a record high in July amid widespread protests, clashes, curfews, and gridlock. Although inflation slightly eased in August, it remained close to double digits. According to the Bangladesh Bureau of Statistics (BBS), the inflation rate in August was 10.49 percent, which dipped marginally to 9.92 percent in September. Despite this decrease, the general public has yet to feel any tangible relief from the high cost of living.
Earlier in September, Bangladesh Bank Governor Ahsan H. Mansur indicated that further rate hikes were on the horizon. “A contractionary monetary policy will continue until inflation is brought under control. We expect another policy rate increase next month,” he said during a briefing on 24 September.
Alarmingly, general inflation has remained above 9 percent for 19 consecutive months, while wage growth has lagged behind inflation for 32 months straight, further eroding purchasing power.
At a press conference on Monday, Governor Mansur expressed hope that inflationary pressures would ease by March or April, although he cautioned that the process would not be quick. “We expect inflation to be in a better position by March-April. It’s difficult to say how much improvement we’ll see, but we are committed to tightening monetary policy until inflation is under control,” he stated.
Mansur also mentioned positive developments in remittance flows and the stabilization of the exchange rate, expressing optimism that these factors, if sustained, would contribute to a reduction in inflation over time.