Business Initiative Leading Development (BUILD) has urged Bangladesh Bank to better align monetary policy with the expansionary national budget, warning that prolonged monetary tightening could undermine private investment, job creation and industrial growth.
The business platform said the central bank’s contractionary monetary policy contrasts with the fiscal stimulus embedded in the FY27 budget, potentially weakening efforts to accelerate private sector-led growth and improve the business environment.
BUILD said the divergence comes as the government expects the private sector to drive investment and create 25 lakh jobs in FY27, while exports, one of Bangladesh’s main growth engines, are facing negative growth.
The organisation expressed concern over Bangladesh Bank’s projection of 6.5 per cent private sector credit growth against 21.8 per cent for public sector credit, saying the gap could intensify the crowding-out of private borrowers as government borrowing absorbs banking sector liquidity.
According to BUILD, the problem is compounded by the fragile condition of several large banks and attractive yields on government securities, which encourage banks to invest in low-risk government debt instead of financing productive businesses.
It said commercial lending rates of 14-17 per cent, driven by the 10 per cent policy rate, 11.5 per cent Standing Lending Facility rate and 7.5 per cent Standing Deposit Facility rate, have sharply raised borrowing costs and weakened industrial competitiveness.
BUILD argued that inflation remains largely supply-driven, with food inflation still above 8 per cent because of supply chain disruptions, market inefficiencies, exchange rate movements and other structural bottlenecks. Under such conditions, it said, monetary tightening alone is unlikely to bring inflation down significantly while continuing to raise financing costs for businesses.
The organisation also questioned Bangladesh Bank’s 13 per cent broad money growth target, saying stronger public sector credit expansion than private sector lending could continue to crowd out productive investment.
BUILD called for a gradual recalibration of monetary policy as inflation eases, including reducing the banking sector’s interest rate spread to around 2.5 per cent from 5.72 per cent, raising credit flows to cottage, micro, small and medium enterprises (CMSMEs), exporters and manufacturers, and increasing CMSME lending to at least 20 per cent of total bank credit from around 15 per cent.
The organisation welcomed Bangladesh Bank’s Tk60,000 crore refinancing package, including Tk5,000 crore earmarked for CMSMEs, but urged transparent implementation with priority for cottage and micro enterprises. It also called for clear eligibility criteria for the Tk20,000 crore support fund for distressed industries and a defined policy framework for the government’s Tk500 crore creative economy allocation.
BUILD said stronger coordination between fiscal and monetary policy is essential to restore investor confidence, stimulate private sector investment and put Bangladesh back on a path of sustainable, inclusive growth.
