TDS Desk:

To control inflation, Bangladesh Bank has kept the policy interest rate unchanged at 10 percent for nearly two years. As a result, bank loan interest rates have risen to 14–15 percent. Despite the prolonged high-interest-rate regime, inflation has not eased to the desired level. Instead, the economy has been grappling with an investment slowdown. Business leaders and industrialists have repeatedly demanded a reduction in interest rates to revive investment, but the central bank has ignored those calls and announced a new monetary policy while keeping the policy rate unchanged.

Bangladesh Bank on Monday (February 10) unveiled the monetary policy for the second half (January–June) of the current 2025–26 fiscal year. Governor Dr Ahsan H Mansur announced the policy at a press conference held at the central bank. Addressing the event, the governor said, “Except for bringing inflation down to the expected level, monetary policy has been successful in other indicators. We’ve performed very well across various economic indicators; only inflation control has fallen short. If a new pay scale is implemented without increasing revenue collection, pressure on government borrowing from banks will intensify, which could further stoke inflation.”

This concern has also been highlighted in the monetary policy statement. It notes the possibility of the government implementing a new pay scale, alongside the upcoming 13th national parliamentary election and the onset of Ramadan. These factors boost demand and consumer spending, increasing the risk of higher inflation.

Private-sector investment in the country has remained sluggish for several years, with the situation worsening further in the current fiscal year. In the monetary policy announced in July 2025, the target for private-sector credit growth was set at just 7.2 percent. However, growth stood at only 6.1 percent by December. Although the policy rate has been kept unchanged, Bangladesh Bank aims to ease the unprecedented investment stagnation to some extent. Accordingly, the new monetary policy has raised the target for private-sector credit growth to 8.5 percent by June. In the previous fiscal year, the target was set at 8 percent.

While private-sector credit growth remains stagnant, the government is borrowing more from the banking system than initially targeted. Against this backdrop, the credit growth target for the public sector has been increased in the monetary policy. While private-sector credit growth has been set at 8.5 percent, the target for government-sector stands at 21.6 percent, meaning the government will borrow roughly three times more from banks than the private sector. Meanwhile, although the target for money supply or broad money growth was 7.80 percent by December, actual growth reached 9.60 percent. Under the new monetary policy, the target has been raised to 11.50 percent by June. The central bank has purchased $4.72 billion from the market, which injected around BDT 580 billion into the market. This caused higher growth in the money supply, according to the Bangladesh Bank.

At the outset of the monetary policy announcement, Deputy Governor Dr Md Habibur Rahman said, “The projection for private-sector credit growth had been revised slightly upward. Once a politically stable government is in place, demand for private-sector credit will increase. Foreign exchange reserves are well above the IMF target, and Bangladesh Bank has been able to meet all of the IMF’s benchmarks.”

Claiming that monetary policy has been successful on all fronts except bringing inflation down to 7 percent, Governor Dr Ahsan H Mansur said, “We’ve performed very well; only inflation control has fallen short. That, too, will come down. The economy will perform even better in the days ahead. It would be wrong to dismiss all achievements simply because one target hasn’t been met. That’s why the policy rate won’t be reduced at this moment.”

The governor argued that maintaining a higher policy rate has helped stabilise the exchange rate. “We’re now reaping the benefits. Remittance inflows and the supply of foreign currency are increasing. To boost the market, the Standing Deposit Facility (SDF) rate has been reduced, which will increase liquidity in the market. It’ll be reduced further in the future. The central bank isn’t a parking place for money,” he said.

Dr Mansur also expressed regret over reform initiatives. “As governor under this government, I’ve enjoyed full professional independence without any pressure. However, I regret that some laws couldn’t be amended. Proposals were made to amend the Bangladesh Bank Order, the Bank Company Act, and the Artha Rin Adalat Ain (an act), but these were ultimately not implemented,” he said.

He added, “We’ll place the matter before the next government. Even in the national interest, these reforms should be carried out. If they aren’t implemented, the banking sector could again fall victim to misuse and plunder, as it did in the past. Implementing the Bank Company Act would make it possible to resist political pressure.”

The governor noted that politicians often seek quick, short-term economic stimulus, while the central bank’s responsibility is to ensure sustainable development, as seen in the United States. “There must be no political pressure on the central bank, and economic discipline must not be undermined. Discipline hasn’t yet been fully restored, but if we regain it only to lose it again, that would be unfortunate,” he said.

Asked whether he would remain in office if reform efforts fail to move forward under the next government, Dr Mansur replied, “That’ll be understood at the time — one can decide whether to cross a bridge only upon reaching it. But regardless of which government comes to power, we’ll have to safeguard discipline in the financial sector.”

Stating that Bangladesh has fulfilled all IMF conditions, the governor said, “The central bank has purchased more dollars for its reserves than the total amount of loans the IMF was supposed to provide over four years. We don’t want to remain dependent on others.”