Bangladesh Bank is once again shedding its institutional autonomy and morphing into a political instrument of the government, economists and bankers warn.
The shift, they fear, invites fresh risks of financial looting, money laundering, and preferential treatment for politically connected business conglomerates.
Experts further caution that the country’s monetary policy is rapidly losing its efficacy, threatening broader macroeconomic stability.
Additionally, a heavy reliance on the banking sector for long-term industrial funding continues to stifle the development of robust capital and bond markets.
Following the July uprising and the collapse of Awami League government, many anticipated that the central bank would finally break free from political shackles.
However, less than 100 days after the BNP government took office, those expectations are rapidly souring.
Bangladesh Bank officials told TIMES of Bangladesh that Governor Md Mostaqur Rahman is prioritising the new government’s political agenda over monetary policy.
The governor himself has explicitly stated in internal meetings that his primary focus was executing the government’s political programmes.
An analysis of Bangladesh Bank’s recent policy directives underscores these concerns.
The central bank has aggressively expanded large-loan exposure limits for corporate groups, slashed penal interest rates for defaulters, and relaxed trade finance and foreign exchange regulations.
Furthermore, it is currently drafting a massive refinancing scheme designed to fulfill the government’s electoral pledge of creating 10 million (one crore) jobs.
Economists argue that the cumulative impact of these concessions is neutering monetary policy, forcing the economy into dangerous over-dependence on fiscal policy.
“Bangladesh is now running on a political economy,” a senior official from the central bank’s monetary policy department lamented. “The true essence of monetary policy has practically vanished.”
The central bank’s own data validates these anxieties.
Reserve money surged by Tk11,440 crore in July-February FY 2026. By contrast, high-powered money had contracted by Tk39,044 crore during the period in the previous fiscal year.
Standard economic theory dictates that every additional taka injected into the reserve system multiplies market liquidity, directly stoking inflation. With inflation already hovering above 9 per cent, analysts fear that further expansion of high-powered money through central bank intervention could push the cost of living to unbearable heights.
BB documents also reveal that the primary beneficiaries of the relaxed large-loan limits include several conglomerates previously accused of bank plundering and capital flight.
“Various business groups, including City, Meghna, and Pran-RFL, alongside trade bodies like BGMEA and BKMEA, lobbied the governor because they couldn’t borrow up to their desired capacities,” a top Bangladesh Bank official told TIMES seeking anonymity. “In direct response to their demands, the governor ordered the loan limits to be raised.”
Analysts warn that the sweeping concessions being extended to businesses under the guise of economic stimulus could trigger another severe financial disaster if abused.
They point out that over the past decade, hundreds of thousands of crores of taka vanished from the financial sector under the cover of similar policy relaxations.
Zahid Hussain, former lead economist at the World Bank’s Dhaka office, told TIMES, “Large borrowers already dominate the country’s default loan portfolio. By allowing them to borrow even more, BB has heightened systemic risk across the entire banking sector. Yet, the central bank’s circular is completely silent on how these risks will be managed.”
Criticising the decision to give wilful defaulters and compliant borrowers equal treatment, Hussain added, “Under this new facility, every borrower can increase their loan leverage. This benefit should have been strictly restricted to clients who regularly service their debts.”
Several BB officials disclosed to TIMES that shortly after taking office, Governor Mostaqur Rahman attempted to cut the policy rate from 10 per cent to 9.50 per cent following intense pressure from business lobbies.
However, officials from the central bank’s monetary policy department fiercely opposed the move, citing stubborn inflation, dollar shortages, and depleted reserves, forcing the governor to back down.
To curb inflation and meet conditions tied to the IMF’s $5.5bn loan programme, BB has held the policy rate at 10 per cent since October 2024.
According to internal sources, the governor has delegated day-to-day banking supervision, regulatory oversight, and monetary policy implementation to his four deputy governors. On the other hand, he has personally focused on reviving closed factories to align with the government’s pledge to create 10 million (one crore) jobs.
Openly defending this policy direction, BB spokesperson Arief Hossain Khan said fulfilling the government’s political promises is the top priority because it assumed power through a public mandate. “The central bank is actively assisting in that process.”
Asked whether BB is forfeiting its institutional autonomy to become a political tool, Khan replied, “When politics works for the greater good of the economy, there is always room for the central bank to play a supportive role.”
However, economist Birupaksha Paul countered that a central bank governor’s primary mandate is to control inflation, stabilise the currency, and enforce financial sector discipline. While BB can support government initiatives, it must do so only after safeguarding these core functions.
He warned that undermining macroeconomic stability to chase political targets is an incredibly dangerous gamble.
As part of this political agenda, BB is currently structuring a Tk 20,000 crore refinancing fund dedicated to reviving closed factories.
The loans to be disbursed from the fund will carry a 13 per cent interest rate with up to 5 percent subsidy from the government.
When pressed on whether political directives are overshadowing the governor’s statutory duties, central bank spokesperson Khan shrugged off the concern, “Inflation doesn’t matter to a person who has no money in their pocket.”
“Job creation initiatives might look theoretically contradictory to traditional central banking operations,” Khan conceded, adding that the ultimate goal right now was boosting employment. “Even if inflation ticks up slightly as a result, we will manage and adjust it later.”
Expressing frustration over the central bank’s current trajectory, a former executive director of BB told TIMES preferring anonymity, “Recent developments indicate that purely political decisions are now steering the economy. Monetary policy has effectively devolved into a mere formality.”
Analysts had raised red flags immediately after Mostaqur’s appointment, warning that the country’s financial framework would become increasingly subordinated to ruling party politics.
Breaking with decades of institutional convention, BNP government appointed Mostaqur, a businessman and accountant, as governor for a four-year term on February 25 this year.
Historically, central bank governors were selected from a pool of seasoned economists, senior bureaucrats, or career central bankers. Since Mostaqur took the helm, Bangladesh Bank has rolled out a succession of sweeping concessions for major business groups.
Notably, on 14 May, the central bank nearly doubled large corporate borrowing limits through a new directive, sparking widespread alarm across the financial sector.
Sector insiders fear this policy will allow notorious bank defaulters and accused money launderers to aggressively expand their credit lines.
Simultaneously, a new provision inserted into the Bank Resolution Act paved the way for former owners to reclaim control of merged banks.
This includes five troubled Shariah-based banks that were heavily compromised under the control of controversial conglomerates like the S Alam and Nassa groups.
Under the central bank’s latest circular, the single-borrower and group exposure limit has been hiked from 15 per cent to 25 per cent.
Consequently, if a bank holds a capital base of Tk 10,000 crore, a single corporate conglomerate can now secure funded loans of up to Tk 2,500 crore, a massive jump from the previous Tk 1,500 crore ceiling.
Furthermore, the risk weight on non-funded facilities, such as LCs and bank guarantees, has been slashed from 50 per cent to 25 per cent.
Senior bankers warn that this policy shift directly plays into the hands of large corporate monopolies while dangerously masking the banking sector’s true systemic risks.
Records indicates that a vast portion of capital flight and money laundering in Bangladesh was executed precisely through these non-funded facilities, which later crystallised into toxic “forced loans.”
The circular also relaxed large loan concentration restrictions for individual banks, raising the aggregate large loan ceiling from 400 per cent to a staggering 600 per cent of a bank’s total capital.
“The Bank Company Act had already capped the funded loan limit at 25%, meaning there was absolutely no statutory room left to increase it further,” a Bangladesh Bank official involved in drafting the policy admitted to TIMES. “Whatever regulatory leeway existed, the governor exhausted all of it to favour big business.”
Analysts point out that hundreds of thousands of crores of taka vanished from the banking sector during the Awami League’s regime even under much tighter credit caps. The current expansion of lending limits is systematically setting the stage for an even greater financial catastrophe, they cautioned.
BB maintains that raising these limits is essential to stimulate trade, investment, and broader business activities. However, document reveals that the primary beneficiaries of these new facilities are poised to be major conglomerates, including S Alam, Beximco, Noman, Ananntex, Sikder, City, Orion, Nassa, Thermex, and Saad-Musa.
Data shows that the country’s top 50 industrial groups already command nearly Tk 3.75 lakh crore in funded loans – accounting for roughly one-fourth of the entire banking sector’s outstanding credit.
A day before expanding the loan limits, BB in another move, slashed penal interest rates on overdue loans from 1.50 per cent to 0.50 per cent, raising eyebrows across the financial sector. Banking insiders stated the decision reduces penalties to the long-term defaulters.
According to the latest figures, defaulted loans shoot past Tk 5.5 lakh crore by December 2025, accounting for a staggering 30.6 per cent of all outstanding credit.
This surge came even after nearly Tk 1 lakh crore in bad loans were aggressively restructured or rescheduled within a three-month window under generous policy concessions.
Analysts contend that the bulk of these toxic assets were simply swept under the rug, mirroring the cosmetic accounting practices of the previous Awami League era.
The political dimensions of these policy relaxations run deep. The governor himself once regularised his own defaulted loans using central bank policy support, while 11 BNP lawmakers were cleared to contest the recent elections only after obtaining High Court stays on their default statuses.
Upon taking office as governor, Mostaqur further expanded opportunities for loan evergreening by extending the deadline for policy support applications until June this year.
Experts emphasise that these contradictory policy directions such as attempting to implement stringent International Financial Reporting Standards (IFRS-9) and deposit protection reforms while simultaneously coddling defaulters and expanding large loan caps are fundamentally sabotaging genuine banking sector reforms.
Meanwhile, a draft amendment intended to legally guarantee Bangladesh Bank’s autonomy remains stalled, leaving it heavily exposed to ongoing political interference.
When questioned about the central bank’s diminishing sovereignty, BB spokesperson and executive director Arief Hossain told TIMES: “The state and the government will determine whether Bangladesh will have a truly independent and autonomous central bank.”
