The Bangladesh Bank (BB) has announced the monetary policy for the January–June period of the current fiscal year, opting to keep the policy rate steady at 10 percent due to persistent inflation levels surpassing its target. The policy rate, also known as the repo rate, plays a crucial role in managing credit demand and money circulation to control inflation driven by consumer demand.
Inflation has continued its upward trajectory for the third consecutive month, hitting 8.58 percent in January, primarily fueled by increased food prices in anticipation of Ramadan, a month of heightened demand among Muslims. The 12-month average inflation rate stood at 8.66 percent last month, significantly exceeding the BB’s desired target of reducing it below 7 percent.
While maintaining a vigilant headline rate, the BB has taken steps to address liquidity issues in the interbank market by reducing its Standing Deposit Facility (SDF) rate by 50 basis points to 7.5 percent. This adjustment aims to discourage commercial banks from parking surplus funds with the central bank and instead encourage them to allocate resources to the private sector.
The monetary policy statement for the latter half of fiscal year 2026 highlights the complex challenges confronting policymakers in Dhaka. Despite signs of moderating price growth, the central bank has warned that inflation pressures remain high and uneven. Emphasizing the importance of exchange-rate stability in managing imported inflation, the bank cautioned against premature rate cuts that could exert downward pressure on the currency before a significant slowdown in inflation occurs.
The central bank also identified various near-term inflation risks, including the upcoming national elections, Ramadan, and the potential implementation of a new national pay scale, all of which typically drive up demand and consumer spending. These factors underscore the necessity for a cautious and well-balanced monetary strategy.
Following a series of rate hikes that culminated in a 10 percent rate in October 2024, the BB has maintained the rate unchanged to address excessive demand and rein in stubbornly high inflation levels.