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Bangladesh Bank has kept its policy rate unchanged at 10 per cent for the second half of FY26, maintaining a tight monetary stance to rein in inflation that continues to weigh on households.

In its Monetary Policy Statement (MPS) for January–June, unveiled on Monday, the central bank said the disinflation process remains uneven and inflation is still elevated, making a rate cut risky at this stage. It stressed that exchange rate stability is crucial to containing imported inflation, warning that lowering the policy rate could trigger depreciation pressures.

The regulator also flagged near-term inflation risks from the upcoming national election, the holy month of Ramadan and the possible rollout of a new national pay scale—factors that typically boost demand and consumer spending.

Under the policy, the Standing Lending Facility (SLF) will remain at 11.5 per cent. However, Bangladesh Bank cut the Standing Deposit Facility (SDF) rate by 50 basis points to 7.5 per cent, aiming to discourage banks from parking excess funds with the central bank and to encourage interbank market activity and private sector lending.

At the same time, the MPS revised several key projections upward. Broad money (M2) growth, initially projected at 8.5 per cent by end-June, has been raised to 11.5 per cent, after actual growth reached 9.6 per cent by December. Public sector credit growth is now projected at 21.6 per cent by June, up from an earlier estimate of 18.1 per cent, while private sector credit growth has been nudged up to 8.5 per cent from 8.0 per cent.

BB Governor Dr. Ahsan H. Mansur said the central bank is prioritising the buildup of foreign exchange reserves. Over the past seven months, BB has purchased more than $4.5 billion from banks, injecting over Tk 500 billion in liquidity into the market.

“Yes, it has a cost, but we don’t see it as a cost because the broad money projection of 11.5 per cent is still lower than nominal GDP growth and the inflation target, which are above 12 per cent,” he said.

Describing the current stance, the governor said monetary policy remains tight, “but not as tight as it used to be. The reality is we’re easing up within the tighter framework.”

He warned that implementing a new pay scale without higher revenue mobilisation would push up government borrowing from banks. Public sector credit growth has already reached 28.9 per cent, he noted, adding that further increases could crowd out private sector lending.

“If it increases further, it will have negative impact on the private sector. We want the government to meet part of the funding requirement through revenue mobilisation so that the pressure is less,” he said, cautioning that higher borrowing could keep interest rates elevated and add to inflationary pressure.

Explaining the SDF rate cut, Dr. Mansur said some banks with surplus liquidity were keeping funds with BB instead of lending or trading in the interbank market. “The central bank does not need this money. We want banks to invest in the interbank market or the private sector, which is why we reduced the SDF rate,” he said.

Economists, however, remain cautious. Former World Bank lead economist in Dhaka, Dr. Zahid Hussain, said the shift from monetary targeting to interest rate targeting means the MPS now relies on projections rather than hard targets.

He argued that while monetary policy can curb demand-side pressures, the recent inflation spikes are largely supply-driven—an area where the central bank has limited influence. “Some easing is visible in this MPS. If demand-side pressures loosen, it could add fuel to the fire. With this strategy, bringing inflation down to the expected level is not realistic,” he said.

On the SDF cut, he added that it appears linked to rising public sector borrowing pressure and may serve as a mild step to reduce crowding out of private credit.