Niaz Mahmud : Bangladesh Bank on Monday announced a new monetary policy for the second half (January-June) of the current fiscal year 2024-25, targeting an inflation rate of 7-8% by this June and 5% by next year.
The central bank also said it would keep its policy rate unchanged to tame the runaway inflation, which averaged 10.34% over the past 12 months.
BB would keep its key policy rate unchanged at 10 percent for the January-June period of 2025 to further reduce inflation, said its Governor Dr. Ahsan H. Mansur.
The BB governor was announcing the MPS on Monday at a press conference at the central bank headquarters in the capital.
The growth target of credit in the private sector for the last half of the fiscal year has been increased, with 9.8% growth until June this year.
The growth rate was 7.3% in the first six months of the fiscal year as of December last year. That means the growth target for the private sector has been escalated by 2.5 percentage points.
Ahsan H. Mansur said the main goals of MPS are to contain inflation, stabilize the foreign exchange market while building foreign exchange reserves of BB, and address the rapidly rising non-performing loans in banks and financial institutions. Given the global and domestic realities, BB remains committed to a tight monetary policy stance for the second half of FY25."
He said with BB's firm policy stance and close collaboration with key stakeholders, inflation is expected to decline further in the near future, and the target range of 7-8% is achievable.
The BB governor expected that inflation will come down to 5% by the next fiscal year, 2025-26 (FY26).
According to the Bangladesh Bureau of Statistics (BBS), the general point-to-point inflation rate in the country slightly eased in January last year as it reached 9.94% down from 10.89% in December, 2024.
At a presentation, Deputy Governor of the central bank Dr Md Habibur Rahman said in light of the recent inflation results, the central bank has decided to maintain the policy rate unchanged at 10%.
"The Standing Lending Facility (SLF) rate will remain at 11.5%, while the Standing Deposit Facility (SDF) rate will stay at 8.5%, establishing a policy rate corridor of ± 150 basis points," he added. He said BB will continuously monitor inflation trends and adjust interest rates and liquidity measures as necessary.
The BB deputy governor, however, said BB has been implementing a crawling peg exchange rate mechanism to enhance both flexibility and stability of the rate in the foreign exchange market.
"This framework is designed to ensure stability of the exchange rate while preparing for an eventual transition to a more flexible exchange rate system in the near future. BB has already stopped intervening in the exchange market by halting completely the sales of foreign exchange in the interbank market to support exchange rate stability," he added.
He said BB has established a methodology for calculating the Foreign Exchange Spot Reference Exchange Rate (RR), which is prepared and published twice per day.
Prudent exchange rate management under the current system is anticipated to strengthen remittance inflows, stimulate export activities, and augment foreign exchange reserves, he added.
Habibur Rahman said the government and the BB have embarked on a series of ambitious reform initiatives designed to avert any potential crisis in the banking system and pave the way for long-term economic stability.
"The success of these ongoing initiatives will hinge on their effective implementation, along with forthcoming measures that aim to develop comprehensive solutions for distressed banks in line with the findings of the Asset Quality Review (AQR)," he added.
Through these efforts, he said, BB seeks to restore sound governance practices and enhance stakeholder confidence in the banking system, thereby fostering a more resilient and trustworthy financial environment for future growth.
On 5 August 2024, a student-led mass uprising forced an authoritarian regime to step down, paving the way for significant political transformation and extensive economic and legal reforms in Bangladesh. As the country enters a new era, it presents opportunities for much-needed reforms in the financial sector that can support the revival of the economy, said the BB in a statement.
In this context, the central bank said it has initiated essential reforms to address long-standing structured problems in the banking sector and rebuild trust in the sector. The key focus areas of the reforms include restoring macroeconomic stability by addressing the inherited external and domestic sector imbalances and restoring price stability through lower inflation.
