Bangladesh Bank keeps policy rate unchanged at 10pc

Bangladesh Bank (BB) on Monday unveiled the monetary policy statement (MPS) for the second half (H2) of this fiscal (FY'25), keeping major policy issues unchanged to contain the inflation within 8.0 per cent.

The central bank presented the MPS at a press briefing at its headquarters, with BB Governor Dr Ahsan H Mansur presiding over the event.

Considering the current macroeconomic situation of the country, the banking regulator said in a statement that it would continue the contractionary monetary policy to control inflation, with the policy rate, or REPO rate, remaining unchanged at 10 per cent.

In light of the recent inflation results, the central bank has decided to maintain the policy rate unchanged at 10.0 per cent, the statement said, adding that the Standing Lending Facility (SLF) rate will remain at 11.5 per cent, while the Standing Deposit Facility (SDF) rate will stay at 8.5 per cent, establishing a policy rate corridor of ± 150 basis points.

The central bank noted that despite various monetary and fiscal tightening measures, inflation had remained persistently high, staying above 10 per cent for an extended period.

However, it added that the impact of these measures are beginning to show, as the point-to-point inflation rate had eased in December and again in January 2025, dropping to 9.94 per cent in January from 11.38 per cent in November, mainly due to a decline in food prices.

With its firm policy stance and close collaboration with key stakeholders, the BB expected inflation to decline further in the near future, making the target range of 7-8 per cent achievable.

The MPS explained that the outlook was supported by actions already taken by the monetary and fiscal authorities, continued stability in the exchange rate, ongoing global commodity price moderation, and anticipated output expansion in agricultural products like rice (boro) and other agricultural products.

“BB will continuously monitor inflation trends and adjust interest rates and liquidity measures as necessary,” it stated.

Terming the current stance of monetary policy “reasonably tight”, the central bank statement said it was also designed to keep Taka attractive as an asset, maintain exchange rate stability and thereby curtail inflationary pressures.

“This deliberate multi-dimensional approach should serve as the cornerstone for our inflation reduction strategy,” it explained.

The MPS for the second-half of the current fiscal year further noted that historical and cross-country experience reveals a consistent pattern: inflation typically recedes in 6-12 months following sustained increases in policy rates, providing valuable insights into the likely trajectory of inflation and reinforcing confidence in this timeline.

“Generally within 6-12 months the real policy rates turned positive in other countries, and thereafter it remains positive with inflation falling steadily,” the statement read.

 “In the case of Bangladesh, we also observed that the real policy rate has turned slightly positive in January 2025 for the first time in recent months, and BB expects the policy rate to become more positive in the coming months with a further decline in the rate of inflation,” it continued.

The central bank, however, noted pessimism in terms of economic growth.

“The student-led mass uprising in the summer of 2024, followed by a change in government, had significant impacts on economic activity, leading to consumer and investor uncertainty,” the MPS explained.

“This uncertainty manifested as a mere 1.81 percent real GDP growth in the first quarter of FY25, down from 3.91 percent in the last quarter of FY24,” it added.

“The growth outlook for the second half of FY25 for Bangladesh does not appear optimistic due to the existing challenges,” the MPS continued, adding that economic growth may remain sluggish at around 4.0-5.0 per cent range in FY25.

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