Bangladesh Bank’s unveiled Monetary Policy Statement (MPS) for the first half of FY2025-26 published on Thursday reflects a careful balancing act between stabilising the macroeconomy and confronting persistent inflation.
With inflationary pressures continuing to weigh heavily on consumers and the financial system, the central bank has opted to maintain its contractionary stance — a necessary, though imperfect, response to a complex economic landscape.
The decision to hold the policy interest rate (repo rate) steady at 10.0 per cent, alongside unchanged SLF and SDF rates, underscores the Bank’s priority: bringing inflation down to the 3–5 per cent target range. Governor Dr Ahsan H. Mansur made clear that until inflation drops below 7 per cent, this tight monetary approach will remain in force.
In line with this goal, private sector credit growth has been revised downward to 7.2 per cent — a significant reduction from the previous 9.8 per cent target. This could cool inflationary demand but may also hamper business activity and job creation.
Public sector credit growth, in contrast, has been increased to 20.4 per cent, suggesting a shift in reliance toward government-led spending to stimulate the economy.
Bangladesh Bank’s firm focus on foreign exchange stability and reserve rebuilding is both timely and prudent, particularly in the context of weakened export demand and rising global trade tensions.
The move to a more flexible exchange rate regime in May 2025 has provided a cushion against external shocks, but sustained interventions will be required to ensure market confidence.
There are also promising signals regarding improved governance in the banking sector, with Governor Mansur citing restored depositor confidence and liquidity recovery. Yet challenges remain profound.
The persistence of high non-performing loans, sluggish private investment, and looming political uncertainty all threaten to derail the central bank’s objectives.
The caution raised by economist Professor Muinul Islam deserves attention. While inflation control is vital, excessive tightening risks suppressing private sector growth and, with it, employment. A contractionary policy cannot succeed in isolation.
Fiscal discipline, structural reform, and stronger regulatory oversight must accompany the central bank’s efforts.
Ultimately, Bangladesh Bank (BB) has made the responsible choice in the face of inflationary and external pressures. But monetary tools alone will not rebuild a resilient economy.
A coordinated, credible reform agenda must follow — one that restores investor confidence, curbs systemic banking weaknesses, and aligns policy with long-term, inclusive growth.
