Policy rate unlikely to change amid high inflation

The Bangladesh Bank is likely to keep the policy rate unchanged at 10 percent for the second half of this year as the country grapples with persistently high inflation, according to officials familiar with the matter.

The central bank is expected to announce the Monetary Policy Statement (MPS) for July–December in the first week of next month.

The policy is currently being drafted by the BB’s Monetary Policy Department. The process includes a month-long consultation with internal and external experts, including economists. The department presented its assessment of the current economic situation and expert views to the BB Board of Directors at a meeting yesterday, presided over by Governor Md Mostaqur Rahman.

The policy rate or the repo rate -- the benchmark at which commercial banks borrow from the central bank -- has been held at 10 percent since October 2024, following 11 successive increases since May 2022. Despite the tightening cycle, overall inflation averaged 8.63 percent in May.

BB officials, who were present at yesterday’s meeting, told The Daily Star that virtually all experts consulted, except businesspeople, are opposed to cutting the rate under current conditions. Board members agreed with that view.

One board member, speaking on condition of anonymity, said the governor had initially leaned toward rate cuts since taking office but now concurs with economists that easing would be premature.

Former BB governor Ahsan H Mansur, who announced the MPS for the first half of this year, kept the policy rate unchanged despite significant pressure from businesspeople. The meeting also discussed high lending rates, a possible interest rate spread cap, and the potential inflationary impact of the Tk 60,000 crore stimulus package, according to sources.

Md Ezazul Islam, director general of the Bangladesh Institute of Bank Management (BIBM), said holding the policy rate steady for the next six months would be the wise decision given current inflationary pressure.

The development comes as Bangladesh’s economy faces a difficult growth outlook. GDP expanded 4.14 percent in the current fiscal year, according to provisional Bangladesh Bureau of Statistics data, following 3.49 percent growth in FY25, down from 4.22 percent in FY24.

The BNP-led government has set a growth target of 6.5 percent for FY2026-27.