Muhid Hasan :
Bangladesh Bank (BB) on Monday unveiled its Monetary Policy Statement (MPS) for the January-July period (H2) of the 2024-25 financial year, announcing that the policy rate (repo rate) will remain at 10 per cent.
The Standing Lending Facility (SLF) rate will stay at 11.5 per cent, and the Standing Deposit Facility (SDF) rate to be maintained at 8.5 per cent, establishing a policy rate corridor of ± 150 basis points.
The central bank described its current monetary policy stance as “reasonably tight,” signaling no intention to further increase the cost of money, while maintaining contractionary measures to curb inflation.
The MPS, presented at a press briefing by BB Governor Dr Ahsan H Mansur, outlines key priorities for H2FY25, which include containing inflation, stabilizing the foreign exchange market, building foreign exchange reserves, and addressing the growing issue of non-performing loans (NPLs) in banks and financial institutions.
BB expects that, with the continuation of tight monetary policies and close collaboration with stakeholders, inflation will decline in the near future, with a target range of 7 to 8 per cent achievable.
The central bank has kept private sector credit growth unchanged at 9.8 per cent for H2FY25, while government borrowing from the banking system has been revised to Tk 99,000 crore, down from the original Tk 137,500 crore.
Despite the progress, the banking sector continues to face challenges, notably the rising number of non-performing loans, which are expected to exceed 30 per cent of total outstanding loans by June 2025. NPLs stood at 16.93 per cent at the end of September 2024, up from 9.93 per cent a year earlier.
The BB cited systemic weaknesses, regulatory gaps, and exploitative practices such as money laundering and illicit capital flight as contributing factors.
BB Deputy Governor Habibur Rahman in his presentation expressed confidence that inflation would decrease to 7 to 8 per cent by June, and further drop to 5 per cent by the following year.
The overall inflation rate has already declined by around 1.5 per cent points, from 11.38 per cent in November 2024 to 9.94 per cent in January 2025.
For FY25, Bangladesh’s GDP growth is expected to slow to 4-5 per cent, primarily due to natural and industrial disruptions. However, growth is anticipated to bounce back to 6.0 per cent or more in FY26 as political stability improves and policies become more proactive.
On exchange rates, BB has implemented a crawling peg exchange rate mechanism to provide flexibility while ensuring stability in the foreign exchange market. The central bank has ceased intervening in the interbank market to support exchange rate stability.
Governor Dr Mansur stressed that the key objectives of the MPS are to control inflation, stabilize the forex market, build reserves, and address the growing issue of NPLs.
He highlighted the positive external sector developments, such as a surplus in the current and financial accounts and a 12.7 per cent year-on-year increase in exports during the first half of FY25, reaching USD 24.5 billion. Remittance inflows also surged by 27.6 per cent during the same period.
Former World Bank economist Zahid Hussain praised the policy stance on the policy rate, although he pointed out some ambiguity regarding the exchange rate provisions in the MPS compared to previous circulars.
Overall, the MPS reflects a cautious but optimistic approach to economic challenges, focusing on stability, reform, and growth in the months ahead.
