Written by The Banking Post
The Bangladesh Bank (BB) is set to unveil its Monetary Policy Statement (MPS) for the first half of FY2025-26 today, aiming to maintain monetary tightening to curb inflation while sharply cutting the private sector credit growth target.
In a significant policy adjustment, the central bank has reduced the private sector credit growth target to 7.2%, down from 9.8% in the previous half. The move comes amid persistently weak credit demand and a sluggish investment environment.
Despite the slowdown, the BB has opted to keep the policy rate unchanged at 10%, maintaining its stance until inflation falls below the 7% threshold. Inflation dropped to 8.48% in June, its lowest in nearly three years, but still remains above the central bank’s comfort zone.
Inflation Concerns Persist
A central bank official confirmed that the policy rate decision aligns with Governor Ahsan H Mansur’s earlier guidance of no rate cuts until inflation stabilises below 7%.
Although inflation has cooled from a peak of 11.66% in July 2024, the central bank acknowledges the limitations of monetary tools in tackling food-driven inflation. The MPS is expected to recommend government intervention through rice imports to stabilise food prices and ensure adequate reserves.
Policy Rates: Mixed Adjustments
While the repo rate and Standing Lending Facility (SLF) remain unchanged at 10% and 11.50% respectively, the Standing Deposit Facility (SDF) rate has been reduced by 50 basis points to 8%. The adjustment, made on 15 July, aims to inject more liquidity into the interbank call money market and improve banking sector efficiency.
Realistic or Too Optimistic?
The revised credit growth target has drawn mixed reactions from economists and industry leaders.
Dr. Mustafa K Mujeri, former BIDS director general and ex-chief economist at BB, expressed doubt over the achievability of the 7.2% target. “Investment is subdued, production is stagnant, and the business environment is uncertain. Without real economic momentum, credit growth is unlikely to rebound,” he said.
In contrast, Tanjil Chowdhury, Chairman of Prime Bank and MD of East Coast Group, views the target as attainable. He pointed to improving investor confidence, potential resolution of US trade issues, and expected recovery in import activities as key drivers. “Export orders are stable, and with a strengthening Taka, the private sector has room to grow,” he noted.
Outlook
Despite inflationary pressures easing, the Bangladesh Bank appears cautious in its policy approach, focusing on stability rather than immediate stimulus. With the private sector credit growth target lowered and interest rates steady, the MPS reflects a wait-and-watch strategy—balancing inflation control with slow economic recovery.
Governor Ahsan H Mansur will officially announce the MPS at 3 PM today, marking his first policy release since taking office earlier this year.
