Bangladesh Bank has put further monetary easing on hold, keeping its policy rate unchanged at 9.50 per cent as higher fuel prices and other domestic and global shocks threaten to reignite inflation.
The decision came at the central bank’s Monetary Policy Committee meeting on Wednesday, less than two months after it cut the benchmark rate by 50 basis points to stimulate investment and private-sector credit.
The central bank had considered another rate cut as investment remained sluggish, but a sharp increase in domestic fuel prices, volatile global energy markets and the implementation of the government’s new pay scale have altered the inflation outlook, according to people familiar with the MPC discussions.
The government raised fuel prices by as much as 17.4 per cent this week as the prolonged Middle East conflict drove up global oil and shipping costs.
The MPC said headline inflation had been declining but remained above the government’s 7.50 per cent target for the current fiscal year.
It decided to assess how the latest domestic and external shocks affect inflation and economic growth before making another move on interest rates.
The decision marks a pause in the easing cycle Bangladesh Bank began on July 30, when it lowered the policy rate from 10 per cent to 9.50 per cent to support investment, economic growth and private-sector credit. The cut took effect on August 2.
Several MPC members had favoured another reduction at Wednesday’s meeting, according to a member who spoke on condition of anonymity.
External economists on the committee, however, argued against further easing, warning that the fuel-price increase could intensify inflationary pressure in the coming months.
They also questioned the timing of the July rate cut given the inflation risks facing the economy, according to people familiar with the discussion.
The committee ultimately opted to wait for clearer evidence on the impact of the latest shocks before changing its monetary stance.
BIBM Director General Dr Md Ezazul Islam backed the decision, saying the fuel-price increase could push up inflation expectations.
“The decision not to cut the policy rate is a wise one,” he said, adding that the MPC could reassess its stance after seeing how inflation and other macroeconomic indicators evolve.
