Bangladesh Bank keeps 9.5% policy rate to contain inflation

Bangladesh Bank (BB) on Wednesday unveiled its first-ever quarterly Monetary Policy Statement (MPS) for the October–December quarter of FY2026–27, keeping the benchmark policy interest rate unchanged at 9.50% to curb inflation while acknowledging that elevated borrowing costs continue to suppress private sector credit growth.

The central bank shifted to a quarterly monetary policy framework from the previous half-yearly cycle in line with conditions set by the International Monetary Fund (IMF).

Deputy Governor Dr Md Habibur Rahman formally announced the monetary policy at a press briefing held at the Jahangir Alam Conference Hall at the central bank’s headquarters in Motijheel.

Under the policy decision, the Standing Lending Facility (SLF) rate remains unchanged at 11%, while the Standing Deposit Facility (SDF) rate stands at 7.50%.

Highlighting the state of credit flow, the central bank noted that higher financing costs resulting from the tight monetary stance, alongside energy shortages, infrastructure bottlenecks and investment uncertainty, have severely constrained credit expansion.

Private sector credit growth slowed to 4.75% in August 2026, reflecting weak investment demand, elevated borrower risks and structural vulnerabilities in the banking sector, where the non-performing loan (NPL) ratio reached 32.78% in June 2026.

The Deputy Governor expressed optimism that private sector credit growth would pick up during the October–December quarter as liquidity conditions adjust.

Explaining the rationale for keeping the rate unchanged, the central bank said premature monetary easing could reignite inflation expectations.

Although headline inflation eased to a 10-month low of 8.26% in August 2026, driven by food inflation slowing to 7.02%, non-food inflation remained elevated at 9.32%.

Underlying price risks linger due to global energy price volatility, potential supply disruptions in the Strait of Hormuz, recent domestic fuel price hikes and fiscal pressures from implementation of the national pay scale.

On overall economic performance, BB said real GDP growth for FY26 stood at an estimated 4.14%, while Q3 FY26 growth fell to 2.2% alongside a 0.28% contraction in industrial output.

For FY27, the World Bank projects GDP growth at 4.6%, while the IMF has revised its projection down to 3.5% from 4.3%.

To support growth without undermining price stability, the central bank highlighted a 60,000 crore taka stimulus package, including 20,000 crore taka for reopening closed factories, alongside active refinance schemes for CMSMEs, agriculture and export diversification.

Regarding the external sector, BB reported that robust remittance inflows, which grew by 18.90% in early FY27, and a broadly stable exchange rate continue to bolster foreign exchange reserves and help buffer against imported inflation.