BB maintains contractionary policy as economy faces multiple inflation shocks
Business Report :
Bangladesh may face renewed inflationary pressure in the coming months owing to a combination of crop losses, election-related spending and heightened consumption ahead of Ramadan, the central bank’s Monetary Policy Committee (MPC) has warned.
According to a recent MPC meeting, the loss of Aman paddy in several regions due to adverse weather, increased expenditures by candidates ahead of the national election, and seasonal demand spikes during Ramadan could intensify price pressure across essential commodities.
The committee also noted that a possible announcement of a new national pay scale may trigger higher household spending, adding to inflation risks.
Despite these looming pressures, the MPC recommended keeping Bangladesh Bank’s (BB) policy rate unchanged, citing the need to preserve macro-financial stability and safeguard the progress made in containing inflation.
The decision comes a week after the International Monetary Fund (IMF) urged Bangladesh to maintain tight monetary conditions until inflation falls within the target range of 5-6 percent.
Bangladesh Bank has kept the policy rate currently at 10 percent unchanged for more than a year as part of its contractionary monetary policy aimed at curbing persistently high inflation.
Although inflation has eased gradually, challenges remain. The annual average inflation rose to 10.03 percent in June, up from 9.73 percent a year earlier. However, point-to-point inflation dipped to 8.17 percent in October from 8.36 percent in September.
Core inflation, which excludes volatile food and fuel prices and typically guides monetary decisions, also fell sharply dropping to 6.19 percent at the end of September 2025 from 8.95 percent in June, according to the central bank.
The IMF’s review mission, led by Chris Papageorgiou, reiterated the need for fully implementing the new exchange rate regime and phasing out non-standard monetary operations to improve policy effectiveness.
The MPC minutes show that committee members assessed the domestic and global macroeconomic landscape, inflation projections, financial market dynamics, external sector developments, and growth prospects before finalising their recommendation.
Bangladesh Bank reaffirmed its contractionary stance, pointing to a positive real policy rate which rose from a negative 2 percent to 1.64 percent by September 2025 as evidence of tightened monetary conditions.
Money market indicators also reflected relative stability: the weighted average call money rate fell to 9.74 percent in October 2025 from 10.01 percent in June 2024, while the interbank repo rate eased to 9.88 percent from 10.07 percent over the same period.
However, private-sector credit growth remained subdued. The MPC attributed this slowdown to weakened credit demand from non-bank financial institutions amid uncertainties linked to the upcoming general elections.
The committee also highlighted the benefits of the flexible exchange rate regime introduced earlier this year, stressing that close monitoring of the US dollar index is essential to maintain Bangladesh’s exchange rate stability.
The MPC further advised strengthening foreign exchange reserves, enhancing market communication, and ensuring that currency market interventions align with global best practices to preserve the competitiveness of the taka.