Govt identifies persistent inflation as top challenge in medium-term outlook

The government has identified inflation as the foremost challenge for the economy in the coming days, like it has been for over two years now.

"Recognizing the challenge of high inflationary pressures, a tight monetary policy stance has been adopted and contractionary fiscal policies are being pursued, with deliberate efforts to restrain aggregate demand and accommodate a moderate growth trajectory in the short run," the Ministry of Finance said in its Medium Term Macroeconomic Policy Statement (MTMPS).

It said that amid a rapidly evolving global landscape and domestic challenges, Bangladesh has adopted a moderate growth path in the short term, with a focus on transitioning to a robust and sustained trajectory in the medium term.

Thus, the MTMPS mentioned that the government is pursuing a balanced and pragmatic macroeconomic policy mix that can safeguard economic stability and support future growth.

To reduce cost-push inflation, the government has adjusted customs duties and extended targeted tax exemptions on essential food items with an aim to lower import costs and help stabilize domestic prices.

The document said that the government has also prioritized promoting fair competition, strengthening institutional governance, and oversight mechanisms for price stability.

"To mitigate potential crises and ensure food security, the government is placing greater emphasis on sustaining and enhancing agricultural productivity, while actively procuring food grains from domestic sources to meet procurement targets and importing from international markets to stabilize prices and ensure adequate market supply," it said.

Concurrently, the Finance Ministry document mentions that measures are being taken to support industrial productivity by addressing labour unrest and maintaining stability in key industries.

"Social protection initiatives will continue through subsidized sales of essential commodities and the expansion of safety net programs to shield vulnerable populations from the adverse impacts of inflation."

While controlling inflation remains the highest priority, the MTMPS said that prudent fiscal management supported by selective expenditure rationalization is also underway, including the postponement and avoidance of less priority projects in the Annual Development Programme (ADP).

The document also says that the government is moving forward with the separation of revenue policy and administration for designing effective, fair, and growth-friendly tax policies along with greater accountability, transparency, and enhanced efficiency.

At the same time, a Medium- and Long-Term Revenue Strategy (MLTRS) has been adopted to enhance revenue mobilization.

"To raise both domestic and foreign investment with the aim of higher productivity and job creation, efforts are underway to promote a business-friendly environment through policy reforms, infrastructure development, and streamlined regulatory processes."

While private sector credit growth remains modest, efforts are underway to stimulate lending activities to support future investment and economic expansion.

To strengthen external sector resilience, measures are being taken to boost export competitiveness and diversify products and markets considering the ongoing global challenges while ensuring a more prudent and demand-sensitive approach to import management.

To contain inflation, Bangladesh Bank has adopted a tight monetary stance by raising the policy rate to 10 percent and maintaining it, as inflationary pressures have yet to ease to a comfortable level. In addition, in coordination with the central bank, the government remains committed to maintaining a stable and market-based exchange rate regime to support external sector stability and bolster foreign exchange reserves.

Bangladesh's economy is poised to transition to a more robust growth trajectory in the medium term, following a period of subdued performance amid evolving global and domestic challenges.

The Finance Ministry document said that the real GDP growth is projected to increase from 5.0 per cent in FY25 to between 5.5 per cent–6.5 per cent during FY26–FY28, while average inflation is expected to ease from 9.0 per cent to a range of 6.5 per cent–5.5 per cent over the same period.

"With inflation control as the top priority, tight monetary and contractionary fiscal policies will remain in place until inflationary pressures ease. The policy rate has been raised to 10 per cent, and the ADP allocation for FY26 has been restrained to support demand management."

It said that the recent improvements in export earnings and remittance inflows enhance external sector resilience and support broader macroeconomic stability.

The general point-to-point inflation rate in the country eased further in May 2025 as it fell slightly to reach 9.05 percent, down from 9.17 percent in April 2025.

According to the latest data from the Bangladesh Bureau of Statistics (BBS), the slight decline was mainly driven by a downtrend in both food and non-food inflation.

In May 2025, the point-to-point food inflation declined to 8.59 percent, down from 8.63 percent in April 2025, the BBS data showed.

Meanwhile, the non-food inflation rate also showed a slight decline, reaching 9.42 percent in May 2025, down from 9.61 percent in April 2025.

The point-to-point inflation rate declined in both the rural and urban areas last month.

The interim government's fiscal year 2025–26 budget, presented on June 2, prioritises inflation control, setting the average inflation target at 6.5 percent and emphasizing tighter monetary and fiscal policy coordination.