Inflation to fall below 7 per cent by mid-2026 amid tightening policies, expects govt

Bangladesh’s interim government believes inflation could fall below 7 per cent by June 2026, buoyed by contractionary monetary policy, fiscal restraint and improving balance across key economic indicators, officials said after a high-level meeting chaired by the chief adviser, Muhammad Yunus.

The assessment was made at a meeting held on Monday at the state guest house Jamuna, where Yunus reviewed the country’s overall economic performance and budgetary outlook with senior policymakers.

Those present included the finance adviser, Salehuddin Ahmed; the planning adviser, Wahiduddin Mahmud; and the Bangladesh Bank governor, Ahsan H Mansur.

According to officials briefed on the discussion, inflation has already shown signs of easing after a prolonged period of pressure driven by currency weakness, supply disruptions and global price shocks.

Based on a 12-month average, overall inflation fell below 9 per cent in November 2025 for the first time since June 2023.

Point-to-point inflation had crossed the 9 per cent threshold in March 2023, peaking at 9.33 per cent.

However, officials said it dropped below 9 per cent again in June 2025 and declined further to 8.29 per cent in November 2025, signalling a gradual but sustained downward trend.

The meeting noted that tighter monetary conditions and fiscal discipline were beginning to yield results, with policymakers expressing confidence that inflation would continue to moderate over the coming months.

One of the most politically sensitive issues discussed was the long-standing gap between inflation and wage growth, which has eroded real incomes in recent years. For much of the past decade, rising prices have outpaced wage increases, leaving households poorer despite nominal income gains.

Officials said that the gap has begun to narrow in recent months. In November 2025, point-to-point inflation stood at 8.29 per cent, while wage growth reached 8.04 per cent. By comparison, during the 2022-23 financial year, average inflation was 9.02 per cent while wage growth lagged at 7.04 per cent.

“This divergence had led to a sustained decline in real income,” one participant said. “The current convergence suggests that the situation is gradually improving.”

The government believes that if inflation continues to fall while wage growth remains steady, purchasing power could recover further during the current fiscal year.

Agriculture, a traditional stabiliser of Bangladesh’s economy, featured prominently in the discussion. Officials credited timely incentives and improved management for strong boro rice production in the previous fiscal year. With no major natural disasters reported so far, prospects for a healthy aman rice harvest also remain strong.

As of 15 December 2025, aman rice production had reached 16.095 million tonnes, with harvesting still ongoing. Officials expect total output to exceed the government’s target once the remaining crop is collected.

Although Aus rice production fell slightly short of targets, total rice output increased by 7.2 per cent compared with the 2024-25 fiscal year. The meeting expressed confidence that government foodgrain procurement targets would be met, easing pressure on food prices and public stocks.

The meeting highlighted a marked improvement in Bangladesh’s external position. As of 18 December 2025, gross foreign exchange reserves stood at $32.57bn, up sharply from about $25bn in August 2024.

Officials attributed the increase to a more stable exchange rate, stronger remittance inflows and higher interest rates in the domestic financial sector, which have helped curb capital flight and encourage formal inflows. Reserves are expected to rise further in the coming months.

The current account, which had recorded persistent deficits from the 2016-17 fiscal year through 2023-24, has also shown signs of stabilisation. Deficits peaked at $18.7bn in 2021-22 before narrowing to $6.6bn in 2023-24. By the end of the 2024-25 fiscal year, the deficit had shrunk dramatically to just $139m.

In the first four months of the current fiscal year, from July to October, the current account deficit stood at $749m — a level officials described as manageable and significantly improved from previous years.

Remittance inflows have remained a bright spot. Between July and November of the current fiscal year, overseas employment was secured for around 500,000 Bangladeshi workers, up from 397,000 in the same period a year earlier. During those five months, remittances totalled $13.04bn — a 17.14 per cent increase year on year.

Import growth has also returned after prolonged restrictions imposed to conserve foreign exchange. While import growth was negative at –1.2 per cent between July and November of 2024-25, it rebounded to 6.1 per cent in the same period of the 2025-26 fiscal year.

The revival is particularly evident in letters of credit (LCs) for capital machinery and industrial raw materials, seen as key indicators of productive investment. Growth in LCs for capital machinery swung from –32.8 per cent in July-October 2024 to 27.7 per cent in the same period of the current fiscal year. For industrial raw materials, LC growth jumped from 10.1 per cent to 40.98 per cent.

Officials said this reflected improved trade financing conditions and growing confidence in the financial system after years of mismanagement.

The meeting concluded that many of the macroeconomic imbalances that had plagued Bangladesh in recent years were gradually moving towards equilibrium. While challenges remain, particularly in managing inflation expectations and sustaining reform momentum, policymakers expressed cautious optimism that the economy is stabilising.

For the interim government, the challenge now is to translate improving indicators into tangible gains for households — and to ensure that economic recovery supports, rather than undermines, the country’s broader democratic transition.

mirmostafiz@yahoo.com