Bangladesh’s economy is in transition. Some indicators offer reasons for optimism, but concerns persist in several critical areas. Inflation has eased somewhat, foreign exchange reserves have improved, and policymakers have taken steps to lower interest rates. Yet investment remains sluggish, the banking sector is fragile, energy supply remains uncertain, and questions about policy consistency have not gone away.
This mixed economic picture is also visible in the capital market. At times, indices rise, trading volumes increase, and investors turn optimistic. Within a short period, however, that optimism can fade. This raises an important question: Is the market genuinely recovering, or is it caught in a cycle of temporary ups and downs?
In July, inflation in Bangladesh fell to 8.32 per cent, its lowest level in eight months. Food inflation declined to 7.16 per cent. That is welcome news, but what matters more is how much relief ordinary people actually feel in their daily lives. A decline in inflation does not mean prices are falling. It means only that the pace of price increases has slowed somewhat. The pressure that several years of high inflation have placed on incomes and purchasing power cannot be erased by a single month’s data.
The country’s foreign exchange reserves have also improved compared with the recent past. According to Bangladesh Bank, gross reserves stood at $36.42 billion at the end of July. Under the IMF’s BPM6 methodology, reserves were slightly above $31.6 billion. Stronger remittance inflows and an improved current account have contributed to this development.
Higher reserves alone, however, do not mean the economy has turned the corner. Unless the foundations of exports, investment, production, employment, and revenue collection are strengthened, there is no guarantee that the improvement will last. The International Monetary Fund has also warned about risks to economic growth and has emphasized banking sector reforms, stronger revenue mobilization, and the restoration of macroeconomic discipline.
Against this backdrop, the capital market deserves closer scrutiny.
The picture emerging from Dhaka’s stock market in recent months has raised many questions. In July, the DSEX, the benchmark index of the Dhaka Stock Exchange, rose above 5,900 points for the first time in nearly two years. Market capitalization increased by around Tk7,000 crore in a single week, while daily turnover climbed above Tk1,400 crore. Expectations of market reforms and improved liquidity generated considerable optimism among investors.
But that optimism weakened in August. On 20 August, after six consecutive sessions of decline, the DSEX staged a modest recovery. Yet turnover fell to Tk670 crore, the lowest in three months. Trading volume remained low despite the slight rebound in the index, a clear sign that investor confidence has not fully returned.
This is perhaps the most important point to consider.
A strong capital market cannot be judged simply by whether its index is rising. A rising index does not automatically mean the market is healthy, just as higher turnover alone does not signal a sound market. The more important question is why people are buying shares. Are they investing after assessing business prospects and future earnings of good companies, or are they chasing quick profits? Are corporate fundamentals driving investment decisions, or are rumours and policy announcements dictating market movements?
Recent market trends suggest that rumours and policy announcements are becoming the stronger influence.
The volatility surrounding changes in margin loan policy is one example. A policy announcement can trigger a sharp market rally within hours. But when uncertainty emerges over the same issue, those gains can disappear just as quickly. On August 18, the DSEX rose by more than 50 points at one stage during the trading session. By the close, it had fallen 40 points to 5,773. Market capitalization dropped by around Tk 5,800 crore that day alone.
This is not merely a matter of share price fluctuations. It is also a question of confidence.
If investors begin to believe that policies may take one form today and another tomorrow, a stable environment for long-term investment cannot develop. If the prices of strong and weak companies alike rise and fall on rumours, the foundations of the market become more fragile. And if a culture of quick profits takes precedence over long-term investment, the capital market cannot become an effective mechanism for mobilizing the capital the economy needs.
This brings us to the banking sector. Bangladesh’s investment system remains heavily dependent on banks. Yet the banking sector continues to face non-performing loans, capital shortfalls, weak governance, and a crisis of confidence. These problems inevitably affect industry and business. The cost of borrowing rises, new investment is discouraged, and business expansion plans are postponed.
Even if efforts are made to increase the flow of money into the economy, lowering interest rates alone will not deliver the desired growth unless that money finds its way into efficient and productive sectors.
This is why the balancing act in Bangladesh Bank’s recent policy measures is so important. Inflation remains above 8 percent, while the economy is also experiencing weak demand and a shortage of private investment. Against this backdrop, steps have been taken to lower the policy interest rate. This reflects an important reality: an economy cannot be sustained indefinitely through tight monetary policy alone.
But lowering interest rates is not a magic wand.
If an entrepreneur is uncertain whether gas supplies will remain reliable, whether electricity will be available, how stable the tax regime will be, or whether financing will be accessible through banks, a modest reduction in borrowing costs may not be enough to persuade them to invest in a new factory.
The major challenge facing Bangladesh’s economy, therefore, is not simply to make money cheaper. It is to reduce uncertainty surrounding business and investment. In other words, the real task is to restore confidence.
The same principle applies to capital market reform. Good companies must be brought to the market. The quality of financial reporting and auditing must improve. There must be visible action against market manipulation. Institutional investor participation needs to increase. Above all, regulatory decisions must be transparent, consistent, and predictable.
Small investors also need to understand the reality of the market. The stock market is not a place to make money quickly. It is a risky avenue for long-term investment. Anyone who invests only on the basis of market rumours, without understanding a company’s business, earnings, assets, liabilities, and future prospects, will remain exposed to significant risks.
Whether the DSEX closes at 5,900 one day and 5,700 the next should not cause excessive excitement or panic. The more important questions are these: Over the next five years, how much will listed companies increase production? How much profit will they generate? How many jobs will they create? And how much new capital will they contribute to the economy?
If the foundations of the economy become stronger, the capital market will reflect that strength. But artificially pushing the market index higher cannot conceal underlying weaknesses in the economy.
Bangladesh is passing through a period when statistics alone will not restore public confidence. Inflation must be brought down, reserves must be preserved, the banking sector must be brought under greater discipline, investment must increase, and productive employment must be created. Alongside these measures, what the economy needs most is policy consistency and credibility.
Entrepreneurs must feel confident enough to invest in future opportunities. Investors must be able to choose shares based on companies’ earnings and business prospects. And ordinary people must be able to look at the economy and believe that tomorrow will be a little better than today.
Ultimately, the most important indicator of Bangladesh’s economy and capital market is not the DSEX. It is confidence. Restoring that confidence is the most important task of all.
