Bangladesh Bank has kept its key policy interest rate at 10% for the January to June period of FY26, signalling that controlling inflation remains its primary focus despite slowing business activity and weak private investment.
Entrepreneurs have raised concerns that prolonged high interest rates are exacerbating the situation, with profit margins shrinking to single digits, making loan repayments at 12 to 15% unsustainable.
They have noted visible strain at the factory level, where low sales in a sluggish economy are impacting capacity utilisation, profit margins, and firms’ ability to repay debts.
Governor Ahsan H Mansur said the central bank would not consider reducing rates until inflation moves decisively towards the 7% target. He acknowledged that while monetary policy has stabilised the macroeconomic environment, it cannot alone address supply-driven price pressures.
Policy decision and outlook
The new Monetary Policy Statement maintains the repo rate at 10%, the Standing Lending Facility (SLF) rate at 11.5%, and the Standing Deposit Facility (SDF) rate has been slightly reduced to 7.5%.
The central bank has raised its projection for private sector credit growth to 8.5% for the second half of the fiscal year, up from an earlier estimate of 7.2%, though actual growth was only 6.1% in December.
Officials expect credit demand to recover gradually once inflationary pressures subside. The policy signals that Bangladesh Bank will maintain a tight stance, with any easing dependent on sustained evidence of falling inflation, in line with guidance from the International Monetary Fund (IMF).
Why inflation remains high
Bangladesh Bank attributes persistent inflation to supply-side constraints and delayed administrative actions, rather than excess demand. Structural weaknesses in domestic markets, delays in import decisions, and weak supply chain management are identified as key factors preventing prices from easing in line with global trends.
The central bank also highlighted delays in reducing import duties, issuing permits, and releasing essential goods through open market operations, which have allowed inflation expectations to become entrenched.
Bangladesh Bank stressed that, while it can influence liquidity and interest rates, it has no direct control over the physical supply of food and other essentials.
Markets, reserves, and external stability
Governor Mansur defended the high-interest rate environment, linking it to exchange rate stability and stronger external buffers. He said foreign exchange reserves have improved and align with IMF programme conditions, while remittance inflows and foreign currency supply have increased.
A tighter policy stance, Mansur argued, has helped stabilise the taka against the dollar, reducing imported inflation risks.
Growth pain and business reactions
Business leaders have expressed concern about the high cost of the tight monetary policy, arguing that it has failed to tame inflation but sharply slowed economic activity.
The Dhaka Chamber of Commerce and Industry (DCCI) voiced “grave concern and disappointment” over the continued contractionary stance, noting that private sector credit growth has fallen to a 22-year low.
The DCCI warned that high borrowing costs and constrained liquidity are discouraging entrepreneurship, industrial expansion, and job creation. Industry leaders pointed to a steady decline in private investment as a share of GDP in recent years, with businesses delaying long-term investment decisions due to high financing costs and uncertainty.
Mohammed Jahangir Alam, president of the Bangladesh Steel Manufacturers’ Association, noted visible strain at the factory level, with low sales affecting capacity utilisation, profit margins, and debt repayment.
He added that with profit margins shrinking to single digits, repaying loans at 12% to 15% interest has become unsustainable.
DCCI President Taskeen Ahmed echoed similar concerns, stressing that the financial health of businesses must be safeguarded to revive the broader economy.
He told TIMES, “Without relief in borrowing costs and stronger coordination between fiscal and monetary measures, it will be difficult to revive investment, production, and employment.”
