Policy rate can't be changed before curbing inflation: BB Governor

The cost of bank credit is not being relaxed now as monetary policy committee (MPC) members decided not to make any change in the policy rate until the goal of combating inflation is achieved. The decision was reached in the eighth MPC meeting chaired by Bangladesh Bank (BB) Governor Dr. Ahsan H. Mansur, held virtually on Thursday.

All the members of the committee - BB Deputy Governor Dr. Md. Habibur Rahman, economist Dr. Sadiq Ahmed, Chairman of the Department of Economics, University of Dhaka Professor Masuda Yasmeen and Executive Director of the Monetary Policy Department, Bangladesh Bank, Dr. Md. Ezazul Islam, Director General of Bangladesh Institute of Development Studies (BIDS) Dr. A. K. Enamul Haque and Member Secretary of the MPC and director of the monetary policy department Mahmud Salahuddin Naser were present in the virtual meeting. Financial sources have stated that the committee reviewed the current economic situation, along with the decisions from the 7th MPC meeting and their implementation status.

The committee evaluated the existing macroeconomic drawbacks and examined the relevant issues from both domestic and international viewpoints. In particular emphasis was laid on analyzing inflation trends and forecasts, economic activity and growth potential, recent developments in financial markets, and the performance of the external sector, according to the source.

Members of MPC also talked about liquidity support measures for banks, particularly addressing cash flow shortages in some conventional and Islamic banks, as well as interest rate trends, foreign exchange reserves, and movements of the current exchange rate, it said. An MPC member said on condition of anonymity that after digging deeper into these factors, the MPC believes that the monetary and exchange rate management policies were on track to support the stabilization agenda. "Maximum members of the committee have decided to keep the policy rate or REPO rate unchanged at 10.0 per cent. Consequently, the SDF (standing liquidity facility) and SLF (standing liquidity facility) will remain at 8.5 per cent and 11.5 per cent respectively," the member said. Responding to a question, the member said the contractionary measures will be continued until the desired level of inflation (8.0 per cent by end of June next) is achieved. "Once the inflation brought down to the targeted level, we'll meet again to adjust the policy rate. Not now because we find the existing policy helps cut the inflationary burden," according to the MPC member.

It means the cost of bank credit will not come down at least in the next couple of months as the interest rate in banks is aligned with the policy rate. If the policy rate drops, the lending rate falls. If it rises, the lending rate also enhances. The banking regulator continued such tightened monetary stance since October 2024 when the policy rate was increased to 10 per cent. Since then, the businesspeople have been requesting the central bank to take measures for limiting the growing cost of formal credit taking ongoing economic slowdown into the consideration. The inflation rate on point-to-point basis in April decreased to 9.17 per cent, Bangladesh Bureau of Statistics (BBS) recent data unveiled earlier. During March 2025, the inflation rate was recorded at 9.35 percent.

Talking to journalists, President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem said lending rate is one the factors that badly impacted the business here. "It must be reduced for the sake ease of doing business," he said. Mohammad Hatem, also Managing Director of MB Knit Fashion Ltd, said the central bank keeps the policy rate at 10 per cent but the commercial banks have been charging lending rate as high as 16 per cent. "We cannot absorb the burden because it is too heavy for the business amid current context of the economic slowdown," Mohammad Hatem further said.