Bangladesh Bank kept its policy rate unchanged at 9.50 per cent for the October-December quarter, signalling that renewed inflation risks now outweigh concerns over weak investment and anaemic private-sector credit growth.
Bangladesh Bank (BB) said the recent easing in headline inflation was not yet durable enough to justify another rate cut, citing volatile global energy prices, disruption in the Strait of Hormuz, higher domestic fuel prices and the possible implementation of a new national pay scale.
The decision comes even as private-sector credit growth remains stuck at just 4.75 per cent, liquidity is ample and the transmission of lower market rates to lending and the real economy remains weak.
Bangladesh Bank said premature monetary easing could weaken inflation expectations and delay the return of inflation to the desired path.
“Considering these risk factors, members of the Monetary Policy Committee decided to keep the tight monetary stance unchanged,” Deputy Governor Md Habibur Rahman said while unveiling the central bank’s first quarterly monetary policy statement on Wednesday.
Under the latest decision, the Standing Lending Facility, the upper bound of the interest-rate corridor, will remain at 11.0 per cent, while the Standing Deposit Facility will stay at 7.50 per cent.
The central bank acknowledged that credit demand remains subdued despite the July rate cut. Private-sector credit growth stood at 4.75 per cent in August, while broad money growth reached 12.40 per cent and the non-performing loan ratio remained high at 32.78 per cent.
Habibur Rahman said liquidity in the banking system was adequate but unevenly distributed, while weak governance, insolvency and inadequate provisioning continued to constrain lending.
BB also stressed that lower interest rates alone would not be enough to revive credit where banks remain financially weak or borrowers lack the capacity or confidence to invest.
The central bank cut the policy rate by 50 basis points in July, arguing at the time that high borrowing costs were weighing on industrial production, employment, investment and private-sector credit while much of the inflation pressure was supply-driven.
That cut helped lower call-money, Treasury bill and bond yields, Rahman said, but the improvement has yet to translate into a meaningful recovery in bank lending.
The latest decision marks a pause in that easing path.
Bangladesh Bank now sees prolonged geopolitical conflict, higher energy and fertiliser prices, tighter global financial conditions, domestic energy and infrastructure constraints, fiscal pressures, the proposed pay scale and continuing banking-sector weaknesses as the main risks to the outlook.
The central bank is also preparing an 18-month plan aimed at reducing non-performing loans and reviving private-sector credit, Rahman said, adding that details would be announced later.
