Bangladesh Bank cut its policy rate last week because the risks to economic growth had begun to outweigh the benefits of keeping monetary policy exceptionally tight, with policymakers concluding that inflation is increasingly being driven by supply-side constraints rather than excessive demand.
Minutes of the central bank’s 13th Monetary Policy Committee (MPC) meeting, released on Sunday, show members unanimously backed a 50-basis-point reduction in the policy rate after assessing that further tightening would have limited impact on inflation while increasing pressure on investment, employment and industrial activity.
The committee lowered the policy rate to 9.50 per cent and the Standing Lending Facility rate to 11.00 per cent, while leaving the Standing Deposit Facility rate unchanged at 7.50 per cent.
The minutes suggest the central bank is recalibrating its priorities after more than two years of monetary tightening. While headline inflation has eased from last year’s double-digit levels to 9.16 per cent in June, it remains above the government’s 7.5 per cent target.
Policymakers nevertheless argued that price pressures are now being sustained less by excess demand than by structural constraints that monetary policy alone cannot address.
The MPC said Bangladesh remains in a “fragile and uneven recovery phase”, constrained by subdued GDP growth, elevated inflation, weak private investment, sluggish private sector credit expansion, employment challenges, energy supply uncertainty and persistently high non-performing loans. It also identified geopolitical tensions in the Middle East as an external risk because of their potential impact on oil and fertiliser supply chains.
Committee members acknowledged that the restrictive monetary stance maintained since mid-2024 had helped moderate inflation, strengthen the external sector, stabilise the exchange rate under the market-based regime and reinforce monetary policy transmission.
However, they concluded that domestic inflation is now being driven primarily by food supply disruptions, administered energy prices, market inefficiencies and distribution bottlenecks rather than excess aggregate demand. With global inflation largely normalised, international commodity prices broadly stable and exchange rate volatility easing, the committee said imported inflationary pressures have also receded.
Against that backdrop, members judged that further monetary tightening would likely deliver only marginal gains in lowering inflation while imposing growing costs on investment, industrial production and employment.
The minutes also underscore the central bank’s concern over weakening growth. Real GDP growth slowed to 2.2 per cent in the third quarter of FY26, while industrial output contracted 0.28 per cent, according to the Bangladesh Bureau of Statistics.
Although the statistical agency estimated full-year FY26 growth at 4.14 per cent, the MPC noted that international institutions have become increasingly pessimistic about Bangladesh’s outlook.
The International Monetary Fund has cut its FY27 growth forecast to 3.5 per cent from 4.3 per cent, while the Asian Development Bank lowered its projection to 3.7 per cent from 4.0 per cent.
The committee also said that major international credit rating agencies have revised Bangladesh’s macroeconomic outlook from stable to negative.
Members expressed concern that exceptionally weak private sector credit growth, reflecting elevated borrowing costs and energy constraints, would continue to weigh on investment and business confidence. Stable interbank market conditions and a positive real policy rate, however, gave the committee confidence that a calibrated rate cut would not undermine macroeconomic stability.
Beyond the interest-rate decision, the MPC proposed replacing Bangladesh Bank’s current half-yearly Monetary Policy Statement with quarterly publications, saying more frequent communication would improve the responsiveness, transparency and effectiveness of monetary policy in a rapidly changing economic environment.
The meeting, held on 30 July, was chaired by Bangladesh Bank Governor Md Mostaqur Rahman.
Participants from Bangladesh Bank included Deputy Governor Md Habibur Rahman, Chief Economist Md Akhtar Hossain, Executive Director Imam Abu Sayed and Monetary Policy Department Director Mohammad Monirul Islam Sarkar, who served as member secretary.
Economist Mustafa Kamal Mujeri, Bangladesh Institute of Development Studies Director General A K Enamul Haque and University of Dhaka Department of Economics Chair Firdousi Naher also attended as MPC members.
