[🇧🇩] Monitoring Bangladesh's Economy

[Saif]

BB sticks to tight monetary policy as inflation stays high

Economists question whether monetary tightening can succeed while the central bank continues to inject funds into banks

www.thedailystar.net

BB sticks to tight monetary policy as inflation stays high

Economists question whether monetary tightening can succeed while the central bank continues to inject funds into banks

Md Mehedi Hasan and Ahsan Habib

Every monetary policy comes with trade-offs. And the Monetary Policy Statement (MPS) the Bangladesh Bank unveiled yesterday is no exception.

One of its biggest dilemmas is that the central bank is trying to cool stubbornly high inflation while simultaneously injecting money into the economy through several channels.

Identifying near double-digit inflation as its biggest challenge, the BB kept the policy rate, its benchmark lending rate, unchanged at 10 percent for the July-December period.

The policy rate, also known as the overnight repurchase rate, is the rate at which commercial banks borrow from the central bank. It has remained at 10 percent since October 2024 after 11 consecutive increases between May 2022 and October 2024.

The Standing Lending Facility (SLF) rate will remain at 11.5 percent, while the Standing Deposit Facility (SDF) rate will stay at 7.5 percent.

Despite the BB maintaining a contractionary monetary policy for years, inflation has remained above 9 percent. It stood at 9.42 percent in May, the highest level in 16 months and well above the central bank’s 7.5 percent target for fiscal year 2026-27.

Economists say the impact of high interest rates has been diluted by BB’s continued liquidity support to weak banks and its purchases of US dollars from the market. Together, these measures have softened the effect of tighter monetary policy.

Over the years, the central bank has injected more than Tk 75,903 crore in emergency liquidity support into troubled conventional and Islamic banks.

Recently, it has announced a Tk 60,000 crore stimulus package for industries affected by the economic slowdown, including support to reopen closed factories. The package is designed to channel credit to productive sectors rather than flood the broader economy with cash.

The BB says the package will not fuel inflation because Tk 41,000 crore will come from surplus liquidity already available in the banking system rather than from new money creation.

INFLATION CANNOT BE BEATEN BY INTEREST RATES ALONE

One of the clearest acknowledgements in the MPS is that tighter monetary policy alone cannot curb inflation driven by structural weaknesses, supply chain bottlenecks and market inefficiencies.

Besides, energy supply-side shocks from the Middle East conflict have exacerbated inflationary pressures. Investment remains sluggish, and overall economic activity shows signs of stagnation.

Speaking at the policy announcement at BB headquarters, Deputy Governor Habibur Rahman said market management would play a crucial role in bringing inflation under control.

Governor Md Mostaqur Rahman unveiled the policy, his first since taking office in February.

The deputy governor said bringing inflation down would require support from other policymakers and agencies, adding that inflation had eased from its earlier peak, suggesting monetary policy had not been ineffective.

“Ensuring discipline in the market and preventing unnecessary hoarding, syndication and price manipulation are essential. At the same time, the Bangladesh Bank remains ready to use all available monetary policy tools,” he added.

BALANCING INFLATION AND GROWTH

The new monetary policy attempts to strike a balance between containing inflation and reviving economic growth.

The central bank said its primary objective remains maintaining low and stable inflation, while price stability is essential for sustainable growth and investment.

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In the monetary policy, the BB projects GDP growth of 6.1 percent in FY27, below the government’s target of 6.5 percent.

The MPS also highlights an unusual feature of the economy. Many banks are sitting on ample liquidity, yet demand for private sector loans remains weak. The reasons include high financing costs and banks wary of rising defaults amid a surge in non-performing loans.

Still, the central bank expects private sector credit growth to reach 6.8 percent by December. In April, it stood at just 4.75 percent, the second-lowest level in more than a decade.

Reserve money, or base money created directly by the central bank, rose from negative 0.1 percent in June last year to 9.2 percent by the end of FY26. The BB projects reserve money growth of 7.5 percent by December, even as it continues to inject liquidity into the financial system.

Public sector credit growth is projected at 21.8 percent by December after reaching an estimated 25.9 percent in June.

Mustafa K. Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), said the BB’s primary responsibility is to control inflation. However, in a developing economy like Bangladesh, it must also support growth.

“Since inflation has remained persistently high for the past three years, the central bank has little choice but to maintain a contractionary monetary policy,” he said.

ECONOMISTS CALL FOR STRONGER FISCAL SUPPORT

According to Mujeri, the fact that inflation has not declined over the last three years indicates that it is not being driven solely by excess demand.

“There are other contributing factors. Therefore, simply keeping the policy rate high will not be enough.”

The economist said monetary policy alone cannot curb inflation and stressed the need for coordinated fiscal policy, stronger market management and effective supply-side measures. Those complementary policies, however, have been implemented poorly, allowing inflation to remain elevated.

He added that high borrowing costs are only one reason investment remains weak. The bigger constraints are the energy crisis, particularly gas shortages, along with extortion and other structural bottlenecks. Without addressing those issues, lowering interest rates alone will do little to revive investment.

Fahmida Khatun, executive director at Centre for policy dialogue (CPD), said policymakers face the difficult task of containing inflation while reviving investment and growth.

With inflation remaining high for about four years, there is little room for an expansionary monetary policy, making the decision to keep the policy rate unchanged justified, she said.

“While liquidity support for industries could aid recovery, it may weaken monetary tightening unless directed toward productive investment, employment and productivity.”

She said stronger public investment, exports, remittances and structural reforms could support growth. However, if private investment and credit remain weak, achieving the government’s GDP growth target will be difficult.

Economist Abu Ahmed criticised the policy mix, saying liquidity injections and higher government borrowing from banks contradict a tight monetary stance.

He argued that high interest rates discourage genuine entrepreneurs, while inflation is being driven by multiple factors, and called for lower lending rates to encourage investment, employment and growth.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said higher interest rates are less effective in Bangladesh than in advanced economies.

“Limited banking penetration, reliance on informal credit, supply-driven inflation and a business-focused banking sector mean higher interest rates mainly discourage investment rather than significantly reducing consumer demand,” he added.

Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh (PRI), said the MPS rightly identifies supply chain inefficiencies, energy prices, exchange rate movements, fertiliser costs and global geopolitical shocks as key drivers of inflation.

“Even so, monetary policy cannot afford ambiguity. When inflation expectations remain elevated, the central bank must clearly signal that price stability is its overriding priority,” Ashikur added.​

 

[Saif]

Will monetary contraction deliver desired results?

The Bangladesh Bank's (BB) latest Monetary Policy Statement (MPS) for the first half of FY2026-27 signals continuity rather than change. Faced with persistently high inflation, the central bank has decided to maintain its contractionary monetary-policy stance, keeping the policy repo rate unchanged

thefinancialexpress.com.bd

Will monetary contraction deliver desired results?

Published :
Jul 03, 2026 00:25
Updated :
Jul 03, 2026 00:25

The Bangladesh Bank's (BB) latest Monetary Policy Statement (MPS) for the first half of FY2026-27 signals continuity rather than change. Faced with persistently high inflation, the central bank has decided to maintain its contractionary monetary-policy stance, keeping the policy repo rate unchanged at 10 per cent. The decision reflects the regulator's resolve to restore price stability, but it also revives an important question, can monetary tightening alone tame inflation without placing an excessive burden on growth and investment?

Contractionary monetary policy is the conventional response when inflation becomes entrenched. By raising the cost of borrowing and restraining the growth of money supply, it seeks to moderate aggregate demand and stabilise prices. However, Bangladesh's recent experience suggests that the relationship is far from straightforward. The country has lived under a relatively tight monetary regime for a considerable period, yet inflation has remained stubbornly high. In the latest MPS, the Bangladesh Bank has revised down its private sector credit-growth target to 6.8 per cent by December, while actual growth stood at only 5.0 per cent in May as banks turned increasingly risk-averse amid rising non-performing loans. Weak credit expansion may contribute to easing inflationary pressures, but it also marks subdued business confidence and slowing investment. Equally noteworthy is the projected growth of reserve money. The central bank expects reserve-money growth to reach 7.5 per cent by December and 11 per cent by the end of the fiscal year. Yet reserve-money growth had already accelerated sharply to 14.39 per cent in April after recording negative growth less than a year earlier. Such volatility inevitably raises doubts about the consistency of liquidity management and the feasibility of achieving the stated targets.

The central bank governor has rightly emphasised the need to revive private-sector confidence. In support of that objective, the BB has announced a Tk 600-billion stimulus package for industries, agriculture and cottage, micro, small and medium enterprises (CMSMEs). It has also capped banks' interest-rate spread at four percentage points to prevent excessive widening of lending margins. These initiatives may provide temporary relief to businesses, but they also expose an apparent policy inconsistency. A genuinely contractionary monetary policy relies heavily on market signals and restrained liquidity conditions. Injecting sizeable liquidity through stimulus programmes while simultaneously imposing administrative limits on interest-rate spreads risks weakening the transmission mechanism of monetary policy. Several economists have, therefore, questioned whether the current policy framework is as restrictive in practice as it appears on paper.

A broader policy dilemma also persists. The central bank seeks to suppress inflation through restrained monetary conditions, while the government simultaneously targets 6.5 per cent GDP growth. Achieving both objectives demands careful coordination between monetary and fiscal policies. Without such alignment, the economy risks finding itself caught between the competing goals of controlling inflation and stimulating growth. Reconciling these priorities is perhaps the central challenge facing policymakers. It calls for complementary fiscal discipline, improved governance of the financial sector, stronger supply chains, greater competition in domestic markets and reforms that address the structural sources of inflation.​

 

[Saif]

Bangladesh's merchandise exports surge 25.91pc in June

Bangladesh's merchandise exports posted a strong 25.91 per cent year-on-year growth in June, reflecting renewed momentum despite persistent global economic and geopolitical challenges. According to provisional data released by the Export Promotion Bureau (EPB), the country earned US$4.20...

en.prothomalo.com

Bangladesh's merchandise exports surge 25.91pc in June

BSS
Dhaka
Updated: 02 Jul 2026, 18: 04

File photo

Bangladesh's merchandise exports posted a strong 25.91 per cent year-on-year growth in June, reflecting renewed momentum despite persistent global economic and geopolitical challenges.

According to provisional data released by the Export Promotion Bureau (EPB), the country earned US$4.20 billion from merchandise exports in June 2026, up from $3.34 billion in the same month of 2025.

The growth was driven by strong performances across major export sectors, including ready-made garments (RMG), leather and leather products, jute and jute goods, home textiles, engineering products and agricultural products.

Total merchandise export earnings during FY2025-26 (July-June) stood at US$48.00 billion, slightly lower than US$48.28 billion earned in the previous fiscal year.

The EPB said maintaining export earnings close to the previous year's level despite global inflation, geopolitical tensions, supply chain disruptions, energy market volatility and subdued demand in key markets demonstrates the resilience and adaptability of Bangladesh's export sector.

The country's main export earner, the ready-made garments sector, recorded a 21.52 per cent year-on-year growth in June, earning $3.39 billion, compared with $2.79 billion in June last year.

During the month, knitwear exports rose 19.49 per cent, while woven garment exports increased 24.02 per cent.

The RMG sector earned US$38.70 billion during FY2025-26, reaffirming its dominant contribution to the country's export earnings.

Among other sectors, leather and leather products exports grew 47.68 per cent in June and 7.09 per cent during the fiscal year, reaching US$1.23 billion.

Jute and jute goods exports registered an impressive 76.60 per cent growth in June and 7.75 per cent growth during the fiscal year, with total earnings of $883.69 million.

Home textile exports increased 59.95 per cent in June and 6.52 per cent over the fiscal year, while engineering products recorded 44.74 per cent growth in June and 21.77 per cent growth during FY2025-26.

Agricultural product exports also posted a 46.77 per cent increase in June, reflecting continued overseas demand for Bangladeshi agro-based products.

The United States remained Bangladesh's largest single-country export destination, with exports reaching $9.05 billion during FY2025-26, marking a 4.09 per cent increase over the previous fiscal year.

Germany and the United Kingdom retained their positions as the country's second and third-largest export markets respectively, while exports to all of Bangladesh's top 20 destinations recorded positive year-on-year growth in June.

The EPB expressed optimism that the positive export momentum, along with continued product and market diversification, would support stronger export growth in FY2026-27 and contribute to the country's sustainable economic development.​

 

[Saif]

The Financial Express | First Financial Daily of Bangladesh

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Ending the foreign investment drought

SYED MUHAMMED SHOWAIB

Published :
Jul 04, 2026 00:41
Updated :
Jul 04, 2026 00:41

There is no better gauge of an investment climate than the willingness of foreign investors to risk their own capital. By that yardstick, Bangladesh has long fallen short. Grand promises, smart investment summits and promotional campaigns have all been tried so far, but they have changed almost nothing. Foreign direct investment simply refuses to take off. During the first 10 months of the fiscal year that has just ended, net FDI amounted to only about US$ 1.14 billion, almost 20 per cent lower than in the corresponding period a year earlier, and that preceding year had also registered a sharp decline from the year before. When investment keeps moving in the wrong direction year after year, it stops being a passing phase and becomes the norm. For much of the past five years, net FDI in the country has stayed stuck at 0.3 per cent of national gross domestic product and placed beside the performance of Bangladesh's closest competitors, this looks genuinely alarming. For perspective, Vietnam regularly pulls in foreign investment equivalent to between 4.0 and 6.0 per cent of its GDP while Cambodia reaches up to an astonishing 13 per cent. These are the countries Bangladesh is supposed to be competing with, and the gulf in performance leaves little doubt about who is winning that contest.

At this moment, global competition for capital is fiercer than ever. Every country is chasing these dollars because investment creates jobs and keeps the economic wheels turning, so it is not surprising that Bangladesh has also engaged in a charm offensive to lure foreign investors in. The present government has identified foreign investment as one of the central pillars of its medium-term economic strategy and has set an ambitious target of raising foreign direct investment to around 2.7 per cent of gross domestic product by 2031. The ambition is understandable, even necessary, but given how weak the base already is, it is hard to see a credible path to that summit.

Among the reasons for that gap, the bureaucratic ordeal of securing basic licences and permits comes up most often. Depending on the industry, a manufacturing company must obtain between 20 and 27 separate approvals before a single project can begin operations. Even for a domestic company, the process can take anywhere from one to three years. For foreign investors, the experience is often even more frustrating. Without familiarity with the local bureaucratic culture or the informal channels that often determine how quickly files move, the wait can stretch indefinitely with no certainty about when, or even whether, the approvals will arrive.

The government's recent pledge to simplify these procedures is a vital step forward. If implemented, a single window for licensing within seven days, visa processing for foreign investors within 10 days and company registration within 48 hours would be a dramatic break from the painfully slow process of the past. For a system where investors have grown used to indefinite waits, definite timelines carry real weight. Even more significant is the proposed idea that applications left pending past the deadline will be automatically deemed approved. This would introduce a new layer of institutional accountability, making it far more difficult for bureaucrats to sit on paperwork indefinitely.

It is, however, worth remembering that bureaucratic reform is far easier to promise than to enforce. Time and again, top officials have proved courteous and receptive when investors raise concerns directly with them, yet that willingness rarely filters down to the implementing agencies and field offices where old habits continue to prevail. Investors ultimately decide not on commitments announced at high level meetings but on what happens in those everyday dealings with the bureaucracy. The red tape and harassment at those agencies and field offices have to end, then, before the investment climate can genuinely improve. That is precisely why the government must ensure that every department, every agency and even the lowest level employee embraces the same pro-business mindset as the country's leadership. Otherwise, the reform agenda will remain little more than words on paper.

Even the most carefully designed reforms mean little unless investors see them working on the ground, since no one risks millions of dollars on policy announcements or polished presentations alone. Everyone knows promotional material is designed to look perfect. What new investors trust instead is confirmation from companies that have already been operating in the country. When existing investors are satisfied, they expand their operations and that success naturally attracts fresh investment from others. Right now, most businesses are stuck in survival mode or actively looking for an exit, which is hardly the signal that attracts anyone else in.

Foreign investment cannot be separated from the decisions of domestic investors either, who have been just as reluctant to commit their funds. They know this market better than anyone outside it ever will, and if they are holding back, it is hard to argue that someone from abroad should feel more confident. Part of that reluctance stems from the high cost of financing. Commercial bank lending rates today have climbed to between 12 and 15 per cent for corporate loans and working capital. Borrowing at these rates requires an exceptionally high profit margin just to service the debt before a business can see any actual profit. Many industries simply cannot generate returns large enough to justify such expensive credit, so investment from them has stalled altogether. Investment decisions are driven by expected returns rather than optimism and unless domestic manufacturing can overcome high interest rates, regulatory bottlenecks and the same ground level hurdles that existing investors already contend with, businesses will continue to avoid taking on unnecessary risks.​

 

[Saif]

The Financial Express | First Financial Daily of Bangladesh

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Private credit growth plummets as economy slows
Regulatory panacea fails to resuscitate investment, spur economic growth

Jubair Hasan

Published :
Jul 06, 2026 00:37
Updated :
Jul 06, 2026 00:37

Regulatory panacea works little to resuscitate investment and economic expansion as formal private credit growth stays almost stagnant in signs of prolonged slowdown in Bangladesh's private-sector-led economy.

To breathe life into the $500-billion-plus economy after months of sluggishness, Bangladesh Bank (BB) has taken up numerous remedial measures, including a stimulus package involving Tk 600 billion to revitalise the economy by way of reopening the stalled manufacturing bases across the country,

But the stimulating regulatory moves have worked little to regenerate confidence in the private-sector players yet, as is reflected in the recent data with the central bank.

According to the BB, the private-sector-credit growth reached 4.98 per cent by end of May last -- the third-lowest monthly count in the history of Bangladesh. The previous lowest growth recorded in the previous two months was 4.72 per cent in March and 4.75 per cent in April.

In fact, growth in private-sector credits has hovered around single digits since August 2024, reflecting prolonged sluggishness in the economy, which is largely private-sector-led.

Even in the just-concluded half-yearly monetary policy statement (MPS) for January-to-June period, the central bank made a private-sector-credit-growth projection at 8.50 per cent by end FY'26 but the actual level was much lower.

Such reluctance in investment credits is attributed to banks becoming more cautious amid higher non-performing loan (NPL) regime and private borrowers losing their credit appetite for perceived multiple anti-business factors, like energy crisis, higher cost of funds, exchange-rate shocks, and the existing taxation policy which is deemed not investment-friendly.

Seeking anonymity, a BB official says the regulator, as part of its plan to promote growth and employment, provided policy perks to the struggling borrowers by ways of allowing them to get regularized just paying 2.0 per cent of the outstanding loans as down payment.

Later, he recounts, the central bank eased the down-payment rules in February last as many of such borrowers were facing difficulties to pay 2.0 per cent. Under revised instructions, half of the stipulated amount must be paid at the time of approval, with the remaining 50 per cent due within six months from the date of effect.

"Despite these facilities, the credit growth for private sector has not got momentum yet," he says.

But the central banker appeared optimistic about a spur in the credit demand in the days ahead as the banking regulator announced the Tk 600-billion stimulus package in May last to boost investment.

Simultaneously, the BB official says, the central bank also capped deposit-lending rate spread within 4.0 per cent last month, which will help reduce the cost of formal credits for businesses amid contractionary monetary-policy regime.

While unveiling MPS for July-December of this year on June 30, BB Deputy Governor Dr Md. Habibur Rahman said the central bank projected the private-sector-credit growth to be increased to 5.50 per cent by June last.

President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem says entrepreneurs have been hit too hard to survive on the market under these prevailing extreme business-and investment climate.

He lists multiple factors, like ongoing prolonged energy crisis, higher borrowing costs and 'anti-business taxation policy', which make survival of the businesspeople difficult.

"Under such circumstances, who dares think of business expansion? I don't know how the growth (4.98 per cent) has happened and who are the borrowers? Will they be able to repay the loans? I have enough doubt," he says.

Chairman of Bangladesh Association of Banks (BAB), an apex body of bank shareholders, Abdul Hai Sarker mentions many factors which discourage the investors from putting their hard-earned money in productive ventures.

He says the supply of power and gas to the industries is uncertain.

"By the end of the day, you need power. Everything will become standstill without this basic thing."

Mr. Sarker, a business leader and also Chairman of Dhaka Bank, says a concerning matter is that the government is facilitating foreign investment by developing special economic zones (SEZs) where investors are getting integrated facilities.

But, he adds, local investors who set up manufacturing bases outside the SEZs in a scattered way faced many difficulties in securing such facilities, which badly affected their competitiveness.

"Yes, we want foreign investment but the government should also look at the local investors so that they can remain competitive with their global partners," he told The Financial Express about perceived local-foreign divide.

Managing Director and Chief Executive Officer of Mutual Trust Bank (MTB) PLC Syed Mahbubur Rahman notes that the volume of LC (letter of credit) opening has dropped significantly in recent times because of persisting prolonged economic sluggishness.

Because of the low credit appetite from the private sector, he notes, the commercial banks have intensified their concentration on investing in state-secured government securities -- treasury bills and bonds -- to make some gains amid the ongoing slowdown in economic activity.

The experienced banker thinks the country is basically heading for stagflation as job creation is not taking place and growth is slowing down while inflationary pressure keeps rising.

Chairman of Policy Exchange Bangladesh Dr M Masrur Reaz says the private-sector-credit growth remains a matter of concern for the country for more than a year whereas the growth was over 6.0 per cent.

"Now, it dropped below 5.0 per cent. It goes to severe worrying level from concerning level," he notes.

About the reasons, the economist says Bangladesh under the immediate- past interim government saw scanty reform activities in streamlining trade-and-investment ecosystem here.

As a matter of fact, the business environment significantly weakened in recent times and the recent crisis in the Middle-Eastern countries worsened the situation further, according to him.​