BB keeps policy rate unchanged at 9.5% as inflation stays above target

Bangladesh Bank kept its policy rate unchanged at 9.5% as the central bank opted to assess the impact of recent domestic and global shocks on inflation and economic growth before making any further changes.

The decision was taken at the 14th meeting of the Monetary Policy Committee (MPC) on Wednesday, chaired by Bangladesh Bank Governor Md Mostaqur Rahman.

The central bank said headline inflation has been showing a downward trend but remains above the government's 7.5% target ceiling for FY27.

At the same time, BB identified fresh inflation risks from volatile international energy prices linked to the prolonged conflict in the Middle East, the recent increase in domestic fuel prices and implementation of the new pay scale.

The MPC said it would assess the effects of these domestic and international shocks on GDP growth and consumer price inflation before making any changes to the current policy rate.

The decision effectively pauses further monetary easing after BB cut the policy rate by 50 basis points to 9.5% in July.

On July 30, BB cut the policy rate from 10% to 9.5%, marking the first reduction since October 2024. 

The revised rate took effect on August 2.

Limited scope for rate cut

Economist AK Enamul Haque told Daily Waadaa, “There is little scope for easing monetary policy at this stage, as increasing money supply could put fresh pressure on inflation”.

He said recent increases in administered prices and reductions in subsidies were also aimed at containing excess demand. Higher prices encourage consumers to shift towards substitute products rather than generating additional demand through an expansion in money supply.

“Monetary policy cannot be eased until global commodity prices and inflationary pressures come down,” he said.

Pay scale impact likely limited

Enamul said the new pay scale could push inflation up slightly, but its overall impact on the economy would likely be limited because it directly affects around 22 lakh government and formal-sector employees.

He said much of the increase in living costs has already been reflected in current prices. Therefore, the salary adjustment would not necessarily result in another similar increase in overall inflation.

The latest decision leaves BB in a cautious position: inflation has started to ease but remains above the target, while fuel prices, global energy markets and the new pay scale could create fresh price pressures.

Other members present at the meeting were Deputy Governor Dr Md Habibur Rahman; economist Dr Mustafa Kamal Mujeri; University of Dhaka Economics Department Chairperson Dr Firdousi Naher; and Bangladesh Bank Executive Director Dr Imam Abu Sayed.

Dr Mohammad Monirul Islam Sarker, member secretary of the MPC and director of the Monetary Policy Department, also attended the meeting.