New monetary policy on Jan 29 keeping interest rate unchanged

Muhammad Ayub Ali :

The central bank is set to announce a new monetary policy while keeping the policy interest rate unchanged, as inflation has yet to decline to the targeted level.

Governor Dr Ahsan H. Mansur will present the monetary policy for the second half of the current fiscal year (January–June) on January 29, with the central bank set to maintain its current contractionary stance until inflation falls to 7 percent, sources said.

Bangladesh Bank releases its monetary policy every six months, detailing how it plans to manage money supply to meet inflation and GDP growth targets.

Economist Prof Muinul Islam told The New Nation, “To stimulate economic activity and encourage greater investment, the central bank should consider lowering the monetary policy rate.”

He explained that the current policy rate is contributing to a slowdown in investment, creating a stagnant situation in several sectors of the economy.

The policy interest rate, a key tool for controlling liquidity, has stayed at 10 percent since October 2024 after a 150-basis-point hike in three phases to curb high inflation.

Point-to-point inflation reached a peak of 11.38 percent in November 2024, then gradually eased to 8.17 percent by October, before rising again to 8.29 percent in November and 8.49 percent in December.

Officials noted that the exchange rate has remained stable at Tk122 per US dollar for a prolonged period, and dollar availability has improved significantly.

A recent Bangladesh Bank study on rising prices of five essential commodities, including rice, pointed to poor market management and farmers switching to more profitable crops as key reasons for reduced rice production and higher prices.

Under the previous monetary policy, private sector credit growth was projected at 7.2 percent by December, but it stood at 6.58 percent as of November.

Officials expect it to stay around 6.5 percent in December, though the central bank foresees higher private sector credit demand after the election as investment activity strengthens.

Accordingly, the target for private sector credit growth by next June is being kept unchanged at 8 percent.

In the public sector, credit growth targets remain at 20.40 percent by December and 18.10 percent by next June.

Broad money (M2) growth is projected at 7.80 percent by December and 8.50 percent by next June.

Meanwhile, Bangladesh Bank has purchased around $3.88 billion from the market, injecting nearly Tk47,000 crore into the economy.

As a result, money supply growth rose to 8.92 percent by November, exceeding the target.

While the central bank aims to bring inflation below 7 percent, the current fiscal year’s budget has set a target of 7.5 percent.

GDP growth is projected at 6.5 percent, and Bangladesh Bank considers this target attainable, pointing to overall macroeconomic stability, anticipated post-election demand, and a significant rise in remittances through formal channels that are expected to buffer the economy against major shocks.