Money Is Flowing, But Confidence Is Not

Bangladesh's broad money (M2) posted its strongest monthly expansion in more than a year in May, signalling a welcome improvement in liquidity. 

According to Bangladesh Bank, broad money increased by Tk 528.66 billion, or 2.26 percent, to Tk 23.91 trillion from Tk 23.38 trillion in April. This was a dramatic turnaround from April's increase of only Tk 26.02 billion, or 0.11 percent. On a year-on-year basis, M2 expanded by 12.45 per cent, adding Tk 2.647 trillion, compared with 7.84 per cent growth a year earlier. While these figures point to stronger monetary conditions, we believe they tell only part of the story. The real question is whether this liquidity will translate into productive investment and sustainable economic growth.

However, the expansion was supported by a 9.54 percent rise in net domestic assets and a remarkable 31.97 percent increase in net foreign assets, reflecting stronger foreign exchange reserves. Reserve money, the base from which banks create deposits and loans, stood at Tk 4.855 trillion in May, up 17.51 percent from June 2025. These developments have undoubtedly strengthened the banking system's capacity to lend. Rising reserves have also injected additional liquidity into the economy, reinforcing overall financial stability. Then again, abundant money alone does not guarantee stronger economic performance.

A closer look at the data reveals a more cautious picture. Domestic credit recovered by Tk 94.73 billion, or 0.39 percent, after contracting in April. Yet the recovery was driven mainly by government borrowing. Net credit to the government increased by 24.61 percent year-on-year, compared with 10.78 per cent a year earlier. Meanwhile, private sector credit grew by only 4.98 per cent, slowing from 7.17 percent. This imbalance is significant. An economy cannot rely indefinitely on government borrowing while businesses remain hesitant to invest and expand.

Bangladesh Bank officials have rightly noted that private sector borrowing remains weak because of subdued investment demand and relatively high financing costs. This suggests that the challenge is no longer liquidity but confidence. Our banks may have more funds to lend, but businesses will borrow only when they see stable policies, stronger demand and profitable opportunities. Without renewed private investment, higher money supply alone cannot generate employment, industrial expansion or stronger exports.

We therefore view the latest monetary figures with cautious optimism. Bangladesh has improved liquidity, strengthened foreign assets and reversed the previous month's credit contraction. These are positive developments. Yet policymakers must now ensure that this additional money reaches productive sectors of the economy. Ultimately, the success of broad money growth should be judged not by its sheer size of the money supply, but by its ability to stimulate private investment, create jobs and sustain long-term economic growth.