BB maintains ‘tight’ stance in MP's to lower inflation to 7-8% by June

Bangladesh Bank (BB) has announced its decision to maintain a 'tight' stance in its Monetary Policy Statement (MPS) for the second half (H2) of fiscal year 2024-25 (FY25), aiming to bring the general inflation rate down to 7-8% by June 2025.

In a press conference held at the central bank headquarters, BB Governor Dr. Ahsan H Mansur emphasized the central bank’s continued efforts to contain inflation, stabilize the foreign exchange market, and build BB’s foreign exchange reserves while addressing the rise in non-performing loans in banks and financial institutions.

“The main goals of MPS are to control inflation, stabilize the foreign exchange market, and manage the rising non-performing loans. Given the global and domestic realities, BB remains committed to a tight monetary policy stance for the second half of FY25,” said Dr. Mansur.

He expressed confidence that with BB’s firm policy and close collaboration with key stakeholders, inflation could decline to the target range of 7-8%. BB also expects inflation to drop to 5% by FY26.

Deputy Governor Dr. Md Habibur Rahman, presenting the MPS details, stated that the central bank will keep the policy rate unchanged at 10%, while the Standing Lending Facility (SLF) rate will stay at 11.5%, and the Standing Deposit Facility (SDF) rate at 8.5%. This policy rate corridor of ±150 basis points is expected to support inflation control and stabilize the economy.

Dr. Rahman highlighted several factors that will contribute to the reduction in inflation, such as global commodity price moderation, increased agricultural production, and continued fiscal and monetary policies. He assured that BB would monitor inflation trends closely and adjust interest rates and liquidity measures as needed.

Furthermore, BB continues implementing a crawling peg exchange rate system to maintain exchange rate stability while preparing for a more flexible exchange rate system in the future. The central bank has stopped intervening in the foreign exchange market and ceased selling foreign currency in the interbank market.

The BB deputy governor also provided insights on the government and BB’s reform initiatives to avert a banking crisis and ensure long-term economic stability. The reforms, part of a broader strategy, include conducting a comprehensive asset quality review (AQR) of banks, improving BB’s regulatory capacity, and pursuing the recovery of stolen assets.

In the broader context, BB recognizes the significant political and economic changes following the student-led uprising of August 2024, which prompted substantial reforms across various sectors, including banking. BB is committed to restoring macroeconomic stability, lowering inflation, and rebuilding trust in the banking sector.

The central bank’s ongoing reforms are critical in addressing long-standing structural issues in the banking system, aiming to enhance governance, strengthen financial stability, and support Bangladesh’s economic recovery and growth.